U.S inflation in July dropped from 9.1% down to 8.5%, leading to The USD plunging overnight against both GBP & EUR. Although prices within groceries and housing continued to climb, a fall in petrol prices by almost 8% to fall below $4 a barrel for the first time since March, no doubt played the biggest part in inflation coming in lower than expected.
After 2 quarters of economic decline, along with further expectations for economic slowdown globally, a drop in the price of Oil has been the main reason for lower petrol prices for consumers. The Federal Reserve will now be keeping an eye on further economic data releases between now and September 21st which is their next monetary policy meeting. Markets are now pricing in a 50bps hike at 57.5%, and a 75bps hike at 42.5%.
Moving towards the end of the week, GBP is set to come under further pressure with the release of GDP Growth for June. Even taking into consideration the Queen’s jubilee celebrations, GDP is expected to have declined rapidly with a drop of 1.2% just in June alone. This would mark a halt in the pandemic economic recovery, the first time the economy has shrunk since the beginning of 2021 and is set to put The UK on course for 2 years without any growth by the time Q1 2024 reaches. On top of this, inflation is set to peak at just over 13% between now and 2024, increasing pressures already being felt by millions of households around The UK.
Heading into the next week, The Pound faces another potentially turbulent week with the releases of employment and inflation figures, which if we’re to go by the forecasts set out by The Bank of England, doesn’t look too good for GBP currency pairs.