Global overview
The year’s strongest major currency was one of the weakest Wednesday after cooler UK inflation dampened prospects for a big rate hike next month. The UK pound tumbled 1% to below 1.30 after British inflation moderated more than expected to a 7.9% annual pace in June, undershooting forecasts of 8.2% and down sharply from 8.7% in May. The data is unlikely to dissuade the Bank of England from hiking on Aug 3, but officials seem less likely to opt for a second straight jumbo increase of 50 basis points. Sterling’s more than two-cent slide from 15-month highs of 1.3144 helped the greenback find some poise after sinking to 15-month lows. Signs of moderating global inflation led traders to ease off the dollar sell button, while the greenback drew additional support from mounting signs of a resilient U.S. economy. Dollar sentiment hinges on next week’s Fed decision at which a 25 basis point rate hike is considered a virtual certainty with attention on whether officials maintain a tightening bias.
Euro takes a breather
The euro eased below its strongest level in nearly 17 months against the greenback. The euro’s charge to late February 2022 highs petered out after comments this week from a senior ECB official injected uncertainty into the outlook for rate hikes after an expected increase in July. That, coupled with evidence of a resilient U.S. consumer, helped the greenback find some poise.
The ECB issues its next rate decision on July 27, the day after the Fed, when it is all but certain to hike by 25 basis points from 3.50%.
Sterling buckles after UK inflation slows
Sterling staged a swoon after cooler than expected UK data suggested less scope for the country’s central bank to raise rates. Surprising to the downside for the first time in five months, UK inflation cooled to 7.9% in June, the lowest level since March 2022 and down sharply from 8.7% in May. Core inflation cooled to a 6.9% annual rate, lower than May’s 31-year peak of 7.1%. The data, on balance, offered hope that UK interest rates, currently at 5%, may top out below 6%, a less hawkish outlook that frustrated sterling bulls.
C$ keeps below 10-month high
Canada’s dollar softened as the greenback firmed and domestic data cast doubt on Ottawa hiking rates in September. Data Tuesday showed that Canadian consumer inflation cooled to a 27-month low of 2.8% in June, below forecasts of 3% from 3.4% in May. The odds of the Bank of Canada hiking for a third straight meeting in September moderated to about 20%. The loonie remained stronger for the week as the winning streak on Wall Street bolstered risk sentiment.
Dollar’s rout abates thanks to resilient U.S. economy
Table: rolling 7-day currency trends and trading ranges
Key global risk events
Calendar: July 17-21
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