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The UK reported its latest inflation data first thing this morning.
Headline UK consumer price inflation (CPI) came in below expectations at 2.8% in April. While inflation is forecast to rise sharply in the coming months, the energy price cap has helped absorb the worst of the shock from the Middle East conflict so far. This morning’s news followed a surprise, albeit small, increase in unemployment that further muddied the waters around the Bank of England’s next interest rate decision (18 June).
Sterling has gone through a difficult phase over the past few weeks. From politics to the economy, the questions are mounting up, increasing the stakes as we head towards some more key data to close out the week.
The pound traded in a small range against the US dollar yesterday but did strengthen by close to half a cent against the euro, completing a sharp recovery of more than a cent since the start of the week.
Donald Trump once again gave sharply mixed comments that spooked oil markets. The US may be forced to strike Iran again, the president said on Tuesday while also claiming the regime was begging to do a deal. The key brent crude index hovered around $110 per barrel on Tuesday, almost double where it had started March.
All the drama around the war has had a chilling impact on global economies and prompted concerns of fuel shortages and major disruption. Government bonds are currently bearing the brunt of the anxiety, with American borrowing costs rising to their highest level since the financial crisis yesterday.
The UK political scene was able to tear itself away from the Labour psychodrama on the news that HS2, the much vaunted and much delayed high speed rail project, would not fully open until the 2040s and would cost the taxpayer upwards of £100bn. The government had already increased the projected cost and scrapped the y-shaped fork that would serve both Manchester and Leeds.
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GBP: A tough year so far
The pound has had a tough 2026 and now holds the unwelcome title of second worst performing currency against the US dollar of all the G10 this year. With some key data to arrive before the week is out, things could get worse before they get better.GBP/USD: the past year
EUR: Awaiting slew of data
The euro came under a little pressure in the first half of this week. A relatively clear calendar meant there wasn’t much opportunity to fight back, but the euro could strengthen across Thursday and Friday should the handful of German consumer reports yield a strong result.GBP/EUR: the past year
USD: Strong foundations
Resilient growth and a lower energy shock exposure than many of its peers mean the outlook for the US dollar looks a bit brighter than some of its rivals. Next week’s GDP report for the first three months of the year is expected to showcase strong growth, a positive sign for investors seeking refuge from the current uncertainty.USD/GBP: the past year
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