Pound Falls as Inflation Reaches 40-Year High, US Dollar Climbs amid Global Slowdown Fears

Pound (GBP) Drops amid Stagflation Fears 

The Pound (GBP) tumbled against many of its rivals today. The drop in Sterling came after figures showed that UK inflation hit a 40-year high in April. The data fuelled stagflation fears, thereby pushing GBP lower. 

Brexit-related headwinds also likely weighed on Sterling today. Earlier this week, UK Foreign Secretary Liz Truss announced that she will be introducing legislation set to scrap large swathes of the Northern Ireland Protocol. Critics fear that such a move could lead to an EU-UK trade war. 

Looking ahead for the Pound, an uptick in industrial trends orders could help the currency recover some losses on Thursday. On the other hand, cost-of-living and Brexit concerns may overshadow the data. 

US Dollar (USD) Buoyed by Fed Comments 

The US Dollar (USD) climbed higher against many of its counterparts today as Federal Reserve rate hike bets continue to underpin the currency. On Tuesday evening, Fed Chair Jerome Powell stated that the central bank ‘won’t hesitate’ to continue to raise rates should high inflation persist. 

However, a shifting market mood created some turbulence for the safe-haven US Dollar, causing it to waver. 

A speech from Fed policymaker Patrick Harker later this evening could push the currency higher, if he too strikes a hawkish tone. Additionally, persistently low initial jobless claims on Thursday could support USD. 

Euro (EUR) Softens as Ukraine-Russia Conflict Rages On 

The Euro (EUR) dropped against many of its competing currencies today as concerns over the impact of the Ukraine-Russia conflict on the Eurozone continued to weigh on EUR.  

However, the single currency may have been bolstered by expectations of a summer 2022 rate hike from the European Central Bank (ECB). Speaking on Tuesday, ECB policymaker Klaas Knot signalled that a 0.5% interest rate hike may come in July should inflation continue to climb. Additionally, persistently high Eurozone inflation may have increased bets on a rate hike. Figures today showed April’s rate printing at 7.4%. 

Looking ahead for the Euro, the ECB’s monetary policy meeting accounts could prompt movement in EUR, particularly if investors pick up on any hawkish hints. 

Australian Dollar (AUD) Falls despite Hawkish RBA Minutes 

The Australian Dollar (AUD) fluctuated during today’s session as a mixed market mood left the risk-sensitive ‘Aussie’ to trade without a clear direction. 

Thursday’s employment figures are forecast to indicate a further tightening of the country’s labour market. This could reinforce calls for more rate hikes from the Reserve Bank of Australia (RBA) and thereby boost the ‘Aussie’. 

Canadian Dollar (CAD) Bolstered by High Inflation in April 

The Canadian Dollar (CAD) gained against many of its rivals today. Inflation in April unexpectedly rose, increasing expectations of a rate hike from the Bank of Canada (BoC) and likely boosting CAD.  

However, some choppy trade in the oil market may have limited the upside for the commodity-linked ‘Loonie’. 

With little notable data due out tomorrow, CAD could trade in relation to oil price dynamics.