Pound Slips amid Fresh Recession Warnings, US Dollar Fluctuates after Hot US Inflation Figures

Pound (GBP) Slides as NIESR Warns of 2022 Recession

The Pound (GBP) slipped today as the pessimistic outlook for the UK’s economy continued to weigh on the currency. Research released today by the National Institute for Economic & Social Research (NIESR) highlighted the strong possibility the country could fall into a recession in 2022.

Brexit-related headwinds may have also pushed Sterling lower today. The British government is once again threatening to undermine the Northern Ireland Protocol, this time through legislative efforts. UK cabinet member Michael Gove stated today that ‘no option is off the table’.

Looking ahead, quarter-on-quarter GDP data on Thursday is expected to show a further growth slowdown which could pull the Pound lower. Balance of trade figures for March on Thursday could also prompt a dip in in GBP if the UK’s trade deficit widens as forecast.

US Dollar (USD) Volatile after Higher Than Forecast Inflation

The US Dollar (USD) fluctuated over the course of today, jumping in the wake of higher than forecast inflation figures. Whilst consumer price growth slowed sharply in April, CPI still increased by 8.3% amid global supply chain issues and the war in Ukraine. Lower petrol prices helped to bring month-on-month inflation lower however.

USD fell over the rest of the day however amid a return of risk appetite to the markets. Concerns over the Federal Reserve’s future interest rate movements likely weighed on the currency.

A forecast fall to PPI figures on Thursday could also contribute to potential volatility in USD. On the other hand, a predicted drop to initial jobless claims could help to bolster USD.

Euro (EUR) Slips despite Signals of Imminent ECB Rate Hike

The Euro (EUR) slipped against many of its rivals amid a risk-on market mood. Uncertainty in the US Dollar (USD) did help the Euro to climb in that currency pairing, as well as potentially limiting major losses for the single currency.

The Euro (EUR) may have also been underpinned by a speech from European Central Bank (ECB) President Christine Lagarde today. The speech strengthened expectations of an interest rate hike from the central bank in summer of 2022. Lagarde stated that the ECB’s first rate hike of the year could come in a ‘period of only a few weeks’ after the bank concludes its asset purchases in early Q3.

A forecast drop to Eurozone industrial production on Friday could pull the Euro lower. Further movements in the US Dollar could also dictate the Euro’s chances.

Australian Dollar (AUD) Gains as Chinese Inflation Rises

The Australian Dollar (AUD) made strong gains against its competitors today amid a return of risk appetite. A rise in Chinese inflation also helped to boost the ‘Aussie’ over the course of the day. Major gains may have been limited by a fall to consumer confidence in May over concerns of future aggressive interest rate hikes from the Reserve Bank of Australia (RBA). A further drop to iron ore prices may have also kept AUD suppressed.

A speech from RBA Deputy Governor Michele Bullock on Friday could prompt movement in AUD should Bullock signal an imminent rate hike.

Canadian Dollar (CAD) Bolstered by Recovery to Oil Prices

The Canadian Dollar (CAD) climbed against its safer rivals today, but struggled elsewhere against a risk-on market mood. The commodity-tied ‘Loonie’ saw a boost over the course of the day as oil prices recovered by nearly 5%. The rise came amid supply concerns as reports indicated further support for the European Union’s Russian oil embargo.

With no further significant data this week, CAD’s movements are likely set to be dictated by the price of crude oil.