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Yesterday brought the news that US inflation jumped by 0.3% in June, a sign that the cost of President Donald Trump’s trade tariffs may be starting to flow down to consumers. The rise led to a strong day for the dollar, as traders bought the currency anticipating that the Fed will hold interest rates steady, rewarding savers. The dollar climbed 0.5% on the euro and more than 0.25% on the pound.
Though, this morning, the UK followed suit, with inflation unexpectedly rising to 3.6% in June, eradicating May’s minor dip. This rise puts further pressure on the Bank of England’s Monetary Policy Committee to hold interest rates steady when they meet next month.
The Bank is aiming for just 2% inflation and one of the few tools in its arsenal to achieve it is keeping interest rates high, so this morning’s data increases the odds of rates staying put at 4.25%. A small boost to the pound this morning, indicates the market may believe there won’t be an August cut.
Earlier this week Bank of England Governor Andrew Bailey said that the two factors that would interrupt planned cuts would be inflation and unemployment. Today’s inflation data isn’t where the Bank would want it, so tomorrow’s jobs data may end up being the decider.
Not to be overshadowed by this morning’s inflation news, yesterday saw the FTSE 100 hit a record high. Analysts say this is driven by traders looking to diversify from the unstable US market.
While the EU may be reeling from the news that Trump’s planning a 30% tariff on the trading bloc, the latest economic sentiment polling out of Germany shows that consumer positivity is at the highest level since February 2022.
The poll was taken before the tariff announcement, but with the EU actually hitting its 2% inflation target, it’s not hard to see why the German’s may be happier than the Brits and Americans.
Make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your Business Account manager on 020 3918 7255 to get started.
GBP: Interest rate cut looks unlikely
Tuesday saw the pound climb on 0.25% on the euro but lag a similar amount behind the dollar. Hopes for an August interest rate cut were slashed this morning by an unexpected rise in inflation.
GBP/USD past year
EUR: On-target inflation and tariffs cost the euro
The euro lost out on Tuesday, falling 0.5% against the dollar and 0.25% against the pound. Those climbs could be driven by traders moving to anticipate a US interest rate hold, and the impact of Trump’s proposed 30% trade tariff on the EU.
EUR/USD past year
USD: Inflation hits five-month high
The dollar was up significantly on the pound and euro on Tuesday, climbing 0.25% on the former and 0.5% on the latter. The backdrop for the rise looks to be the news that US inflation jumped 0.3% in June, making a Fed interest rate cut even more unlikely.
USD/GBP past year
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