Currency Note

Pound struggles against euro but stronger against dollar

By Alex Bennett July 20th, 2022

The pound is still weaker against the euro this morning but is stronger against the dollar after the release of UK inflation data for June.

Inflation came in at 9.4%, up from 9.1% in May. This is now the ninth consecutive month that inflation has risen which has increased expectations that a 50 basis point interest rate hike by the Bank of England is likely next month.

In the Conservative leadership race, Rishi Sunak remains the front runner while Kemi Badenoch has been eliminated. Today, Tory MPs will decide which two of the final three candidates they wish to be put to a ballot of party members, who will have the final vote.

In the eurozone, news that Russian gas giant Gazprom will resume its provision of gas to the EU tomorrow has supported the euro. Markets now await the European Central Bank’s latest interest rate decision and a speech by ECB President Christine Lagarde tomorrow.

The dollar has been given little to play with in recent days and remains weaker. Today’s existing home sales and tomorrow’s jobs data could provide the greenback with some support.

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GBP: 50 basis point interest rate hike likely in August

The pound weakened against the euro over the course of yesterday and is still weaker this morning. Against the dollar, sterling has strengthened, touching an 11-day high yesterday.

UK inflation rose for the ninth consecutive month to 9.4% in June. Bank of England Governor Andrew Bailey spoke yesterday at Mansion House and confirmed that a 50 basis point interest rate hike was likely in August, but a final decision was yet to be made. His comments provided initial support for sterling.

In the Tory leadership race, Rishi Sunak has once again topped the MPs’ ballot, while Kemi Badenoch has been eliminated.

GBP/USD chart over past year

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EUR: Euro gains as gas worries ease

The euro has strengthened this morning, mainly due to dollar weakness and positive news in the eurozone.

Eurozone inflation rose to 8.6% in June, as expected. Tomorrow we will see the European Central Bank’s latest interest rate decision and a speech by ECB President Christine Lagarde. A hike of 25 basis points is expected to try and tackle this rising inflation, but there are rumours of a potential 50 basis point hike. Any surprises could impact the single currency.

The euro is also being supported by news that Russian gas company Gazprom will resume providing gas to the EU on 21st July, as planned.

Later today, eurozone consumer confidence figures will be released. A fall of 1.3% is expected.

USD: Dollar down as markets await data releases

The dollar is still weaker this morning as a ‘risk on’ sentiment continues to drive the American currency down.

In the data world, both housing starts and building permits declined in June. It’s a light data day today, with June existing home sales being the main release.

Tomorrow, initial jobless claims figures – which indicate the number of Americans filing for unemployment benefits – will be released.

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