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Sterling Dips After Strong Start

Sterling Dips After Strong Start

GBP

Overall confidence in the UK recovery outlook was sustained following the batch of data releases. The growth data did not dampen expectations of a strong recovery in the economy while the trade data and a net recovery in EU exports also lessened the immediate risk of selling on the grounds of Brexit concerns.

In this environment, Sterling was able to maintain a firm underlying tone. The UK FTSE index also out-performed in global terms which underpinned the UK currency. Sterling did retreat against the Dollar following the US inflation data, but the Euro retreated to 1-month lows. The UK currency was undermined by higher US yields and weaker equities and dipped to near 1.4050 against the Dollar whilst against the Euro recovering to the 1.1640 mark. 

 

USD

US consumer prices increased 0.8% for April which was substantially above consensus forecasts of 0.2% and the strongest monthly increase since August 2008. The year-on-year increase jumped to 4.2% from 2.6%, also well above market expectations of 3.6% and the highest reading since October 2008.

Underlying prices increased 0.9% on the month compared consensus forecasts of 0.3% with the year-on-year rate at 3.0% from 1.6%. This was the highest core reading since the beginning of 1996. There was a sharp increase in energy services prices on the month and there was a 10% surge in the price of second-hand vehicles to give a 21% annual increase. There were also strong price increases in commodities on the month.

 

EUR

Solid appreciation in the Dollar after the US inflation data, keeps its Euro counterpart lagging around the 1.2100 on Wednesday with the pair moving into the vicinity of yesterday’s low near the 1.2070 mark.

The Euro gave up its gains, despite growing economic optimism in the Old Continent. The EU Commission has revised its GDP forecast for 2021 and 2022 backed by a surge in private consumption and investment. 

 

Data to watch

13:30 – USD – Unemployment Claims 

17:00 – GBP – BOE Gov Bailey Speaks 

18:01 – USD – 30-y Bond Auction

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