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.
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