Pound dips as dollar bulls rebuild after CPI
Sterling traded lower on Thursday as UK GDP growth slowed in the second quarter, while the euro edged higher, as the dollar found broad support from position rebuilding after this week’s in-line US inflation data failed to shift the Federal Reserve rate outlook.
Intelligence analysis by Llama
The dollar had a short-lived negative reaction to the spot-on consensus US inflation data, but ended the day stronger, perhaps on some net long rebuilding. The euro continues to test its range against the dollar, with ING retaining a preference for EUR/USD upside.
Imagine the dollar is a big, strong animal, and the euro is a smaller, faster animal. When the US inflation data came out, the dollar was a bit surprised, but then it remembered it's strong and kept going. The euro is still trying to figure out what to do, but it's not giving up yet.
Analysis
UK GDP Growth Slows Down in Q2
The UK GDP growth slowed down to 0.4% in the second quarter from 0.6% in the first, though the reading matched economist estimates. The sterling's move was not driven by domestic fundamentals but by broad dollar strength.
Broad Dollar Strength
The dollar had a short-lived negative reaction to the spot-on consensus US inflation data, but ended the day stronger, perhaps on some net long rebuilding. The release did not provide a conclusive answer for front-end rates and FX direction, and the dollar ended the day stronger.
Euro Continues to Test Its Range
The euro continues to test its range against the dollar. ING retains a preference for EUR/USD upside, though this must be balanced against the risk that renewed escalation in the Gulf could provide fresh support to the dollar. ING's targets remain 1.160 in coming weeks, 1.17 by autumn and 1.18 by year-end.
Key points
- The UK GDP growth slowed down to 0.4% in the second quarter from 0.6% in the first.
- The dollar had a short-lived negative reaction to the spot-on consensus US inflation data, but ended the day stronger.
- The euro continues to test its range against the dollar.
- ING retains a preference for EUR/USD upside, though this must be balanced against the risk that renewed escalation in the Gulf could provide fresh support to the dollar.
If the dollar continues to strengthen, it could lead to a decrease in the value of the euro, making it cheaper for people to travel and do business abroad. This could also lead to an increase in the value of the pound, making it more expensive for people to travel and do business in the UK.
If the dollar continues to strengthen, it could lead to a decrease in the value of the euro, making it more expensive for people to travel and do business abroad. This could also lead to an increase in the value of the pound, making it more expensive for people to travel and do business in the UK.