US Dollar Rose In The Wake Of US CPI Inflation Reports (EUR/USD), UK CPI Inflation Data Exceeded Market Expectations (EUR/GBP, GBP/AUD)

The British Pound (GBP) Indicated Increasing Bearish Sentiment

Summary:

  • Money market pricing indicates that the Fed will raise rates by 75 basis points.
  • UK CPI inflation rate was lower in August than it was in July.
  • According to economists, the Australian Dollar will fare better than any other major currency in 2022.

USD rose, gold futures fell & stocks dropped sharply

The market is reflecting mixed signals for this currency pair. The US Dollar rose, gold prices fell, and US stocks dropped sharply on Tuesday as a result of the August US CPI report's substantial effect on the financial markets. Headline Inflation in the US gained +0.1% m/m and +8.3% y/y, above expectations of no gain m/m and an increase of +8.1% y/y. Also hotter than anticipated, the core reading came in at +0.6% m/m versus a projection of +0.3%, while the y/y stood at +6.3% versus +6.1% anticipated.

Money market pricing indicates that the Fed will raise rates by 75 basis points, but the tail-risk surprise has changed from a 50 to a 100 basis point increase. This reveals where the momentum is: more rate increases will result in the Fed Funds rate peak being higher than anticipated before the inflation report.

US Dollar Rose In The Wake Of US CPI Inflation Reports (EUR/USD), UK CPI Inflation Data Exceeded Market Expectations (EUR/GBP, GBP/AUD) - 1 EUR/USD Price Chart

Has UK Inflation hit its peak?

The market is reflecting mixed signals for this currency pair. Pound Sterling increased the day after the news broke. The UK CPI inflation rate was lower in August than it was in July, indicating that the price increase's peak may have already passed. This would be a favorable development for the outlook of the UK economy and, consequently, the Pound. However, the Bank of England's decision on September 22 looms large, and the final position of Sterling at the end of September may depend on whether they choose to raise interest rates by 75 or 50 basis points. According to analysts at certain large investment institutions, the market is expecting a 75 basis point increase from the Bank, which it must provide to maintain stable Pound exchange rates. The pound would decline if the Bank of England disappointed markets with a modest increase.

US Dollar Rose In The Wake Of US CPI Inflation Reports (EUR/USD), UK CPI Inflation Data Exceeded Market Expectations (EUR/GBP, GBP/AUD) - 2 EUR/GBP Price Chart

GBP/AUD currency pair

According to recent research from BMO Capital Markets, the Australian Dollar is a "quality" currency that is expected to increase in value against the U.S. Dollar and all other major currencies in the upcoming months. According to a BMO analysis of the Aussie Dollar, it is one of the best-performing currencies in 2022 because of a strong set of underlying reasons that support it.

According to economists, the Australian Dollar will fare better than any other major currency in 2022 thanks to the nation's strong export market and sound domestic fundamentals. Australia's foreign exchange revenues have increased due to rising commodity prices, which has supported its currency.

US Dollar Rose In The Wake Of US CPI Inflation Reports (EUR/USD), UK CPI Inflation Data Exceeded Market Expectations (EUR/GBP, GBP/AUD) - 3 GBP/AUD Price Chart

Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com

The British Pound (GBP) Indicated Increasing Bearish Sentiment

Rebecca Duthie

Remote Editor and writer Intern
FXMAG.COM

Rebecca has a bachelors degree in Investment Management, a Post Graduate Diploma in Financial Planning and is currently enrolled in a Masters program in International Management with a Specialization in International Finance.