GBP/USD zipped up to its highest in over a month yesterday, as falling inflation pushed investors away from the US dollar.
US inflation fell to 3.4% year-on-year in April, down from 3.5% in March and below forecasts of that same figure. The 0.1% change may seem paltry, but it was evidently enough to sow the seed of doubt within currency markets, which had expected the Federal Reserve to delay interest rate cuts.
Of course, much of what happens in markets is reactive, and is therefore not the best judge of what’s to come. Who’s to say that today’s US building permit figures or next week’s UK inflation data won’t push the needle in the opposite direction? Certainly not us, that’s for sure.
GBP/USD climbed by around half a cent on Wednesday, with the pound also advancing on the euro by around 0.25%. EUR/USD also picked up by half a cent as US data drained short-term demand for the US dollar.
While US inflation was undoubtedly the main story yesterday, we also saw GDP growth in the eurozone come in at 0.4% annualised and 0.3% in the first quarter in the second estimate, unchanged from the first read.
French inflation meanwhile edged up slightly to from a first estimate of 2.1% to 2.2% in April’s final read. That was lower than March’s 2.3%, but prices fell by less than expected primarily due to resurgent energy costs.
The US dollar’s reputation as a safehaven means it is never far away from a rally. That’s particularly true considering ongoing geopolitical uncertainty. Yesterday, markets added an assassination attempt on Slovakia’s Prime Minster Robert Fico to their long list of worries. Fico was said to be in life-threatening condition after he was shot multiple times at a campaign event outside Bratislava.
US stocks meanwhile had a field day on the inflation news. The S&P 500 index reached an all-time high yesterday afternoon, while the NASDAQ also made ground after its own record breaking day on Tuesday.
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