Home Daily Commentaries UK inflation holds steady as the Pound surges higher

UK inflation holds steady as the Pound surges higher

Conor Fleming
Written by
Conor Fleming

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor spearheads initiatives to encourage businesses in Germany, Switzerland, and Austria to hedge their foreign currency risks with OFX.

| Wednesday 17 July, 2024

Daily Currency Update

In Europe, the European Central Bank (ECB) has released survey details indicating that domestic households are applying for loans in growing numbers for the first time in two years. This increase in loan applications is attributed to rising optimism about the economy and falling interest rates. The central bank of the 20 countries that share the Euro currency is expected to keep interest rates on hold this week. However, markets have priced in two more rate cuts totalling 50 basis points for this year.

The pound held steady yesterday, just shy of a one-year high, as markets brace for a raft of political and economic data due for release later this week. Key among this data is the inflation report, due today, which will be crucial in determining whether the Bank of England will cut rates at its upcoming August meeting or wait until later in the year. Additionally, King Charles is set to announce the full legislative agenda of the new British Prime Minister, Keir Starmer, today.

The US Dollar weakened yesterday despite better-than-expected retail sales data, as investors consider the prospects of further rate cuts by the Federal Reserve this year. Investors fully expect a rate cut by the Fed in September and an additional 60 basis points by the end of the year.

 

Key Movers

The European Central Bank (ECB) meets tomorrow to set interest rate policy. It is widely expected to leave rates unchanged, as policymakers await further economic data following a rate cut in June. However, there is an anticipation of another rate cut at the ECB's September meeting, with markets pricing in 45 basis points of cuts for this year.

In the UK, the pound is expected to remain firm after Gross Domestic Product rose by 0.4% in May. Contributing to the pound's recent strength is the political stability following the installation of a new government with a massive electoral majority. Despite its recent strength, the pound appears overbought at current levels and may give back some ground through the rest of July.

In the United States, former President Donald Trump and his newly appointed running mate, J.D. Vance, have been vocal in opposing a strong dollar policy, blaming it for harming US manufacturing by making imports cheaper. If elected, this stance may increase political pressure on the Federal Reserve to cut interest rates and maintain lower rates for an extended period. Such rhetoric is expected to keep the US Dollar on the back foot through the summer.

Expected Ranges

  • GBP/USD: 1.2950 - 1.3030 ▼
  • GBP/EUR: 1.1880 - 1.1935 ▼
  • GBP/AUD: 1.9250 - 1.9305 ▼
  • EUR/USD: 1.0870 - 1.0930 ▲

Written by

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor first embarked on his financial career journey as a trainee dealer in BNP Paribas in the early 90s. His professional journey also took him to New York, where he assumed the role of Head of Sales with an Irish bank for a few years. During his tenure at both banks, he was invited to several interviews on Irish television to discuss market turbulence, the factors driving volatility and insights into what could be expected as events unfolded.