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The pound is falling after inflation data

In the European session, the US dollar is trading up against all the majors. Demand for the dollar surged on the back of a rise in US 10Y bond yields to 2.248%. The downwards movement on the euro/dollar and pound/dollar crosses has strengthened the dollar.

After the release of weak inflation data from the UK, the pound’s drop intensified, reaching 1.2867 (90 pips). At the time of writing, the pound is trading at 1.2867 USD. With inflation growing at a reduced rate, the likelihood of a hike in interest rates by the Bank of England this year has decreased.

As the pound starts to drop, its downwards impulse is boosted by media reports of complicated Brexit negotiations. According to the UK’s Brexit minister David Davis, the British government is looking to secure an interim deal during which trading between the UK and EU would continue under their current terms.

Today, the US will publish data on retail sales in July. The overall indicator is expected to show MoM growth of 0.4% after a 0.2% drop in June, while the core indicator is expected to grow by 0.3% after a 0.2% drop the previous month. Given that the dollar is rising before the publication, there will only be a reaction to this among traders if the report is disappointing. In such a case, the euro/dollar will restore to 1.1775 and the pound/dollar to 1.2915. The news’ effect will be temporary; a maximum of 2 hours if the actual value differs significantly from the forecast. Trader attention will then switch back to North Korea.

European statistics:

  • Germany - GDP (Q2): 0.6% QoQ, 0.8% YoY (forecast: 0.7% QoQ, previous: 0.7% QoQ, 3.2% YoY).
  • UK - CPI (Jul): -0.1% MoM, 2.6% YoY (forecast: 0.0% MoM, 2.6% YoY, previous: 0.0% MoM, 2.6% YoY).
  • UK – retail price index (Jul): 0.2% MoM, 3.6% YoY (forecast: 0.1% MoM, 3.5% YoY, previous: 0.0% MoM, 3.3% YoY).
  • UK – PPI output (Jul): 0.1% MoM, 3.2% YoY (forecast: 0.0% MoM, 3.1% YoY, previous: 0.0% MoM, 3.3% YoY).
  • UK – PPI input (Jul): 0.0% MoM, 6.5% YoY (forecast: 0.5% MoM, 7.0% YoY, previous: -0.3% MoM, 10.0% YoY).

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