Pound slides as US inflation outperforms
The British pound is taking a beating today from the US dollar, following back-to-back losing sessions. In the North American session, GBP/USD is trading at 1.2378, down 0.94% on the day.
US inflation continues to accelerate. The May inflation report showed that headline inflation rose to 8.6% (8.3% prior). Core CPI ticked lower to 5.9%, down from 6.0%. With no sign of inflation peaking, the Fed is expected to remain aggressive and this has sent the US dollar sharply higher. It will be interesting to see how Fed officials respond to the inflation release, with a Fed policy decision coming up on Wednesday.
It was a light data calendar this week out of the UK. One release that was noteworthy was Inflation Expectations, released earlier today. The BoE survey found that inflation expectations for the next 12 months had risen to 4.6%, up from 4.3% n February. Inflation expectations for 2 years and 5 years were also higher, which is clearly a worrying trend. The danger of inflation expectations becoming unanchored could manifest into actual inflation continuing to accelerate. CPI hit 9% in April, up from 7.0% in March, and the BoE has stated that we could see double-digit inflation.
Asides from inflation, there are plenty of worries for investors with regard to the UK economy. Prime Minister Johnson may be on his way out after a disappointing showing at a non-confidence vote and there is trouble brewing with the EU over the Northern Ireland protocol. This points to a bumpy road for the British pound in the short term.
GBP/USD faces resistance at 1.2537 and 1.2614
GBP/USD is testing support at 1.2413, followed by support at 1.2336
US inflation continues to accelerate. The May inflation report showed that headline inflation rose to 8.6% (8.3% prior). Core CPI ticked lower to 5.9%, down from 6.0%. With no sign of inflation peaking, the Fed is expected to remain aggressive and this has sent the US dollar sharply higher. It will be interesting to see how Fed officials respond to the inflation release, with a Fed policy decision coming up on Wednesday.
It was a light data calendar this week out of the UK. One release that was noteworthy was Inflation Expectations, released earlier today. The BoE survey found that inflation expectations for the next 12 months had risen to 4.6%, up from 4.3% n February. Inflation expectations for 2 years and 5 years were also higher, which is clearly a worrying trend. The danger of inflation expectations becoming unanchored could manifest into actual inflation continuing to accelerate. CPI hit 9% in April, up from 7.0% in March, and the BoE has stated that we could see double-digit inflation.
Asides from inflation, there are plenty of worries for investors with regard to the UK economy. Prime Minister Johnson may be on his way out after a disappointing showing at a non-confidence vote and there is trouble brewing with the EU over the Northern Ireland protocol. This points to a bumpy road for the British pound in the short term.
GBP/USD faces resistance at 1.2537 and 1.2614
GBP/USD is testing support at 1.2413, followed by support at 1.2336
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