- Pound (GBP) dips after inflation increased just 0.5% yoy in May, down from 0.8%
- Geopolitical tensions & second wave fears in China drag on risk sentiment boosting safe haven US Dollar (USD)
- US retail sales, yesterday, recorded record jump +17.7% vs +8% forecast
- At 06:15 UTC, Pound / US Dollar exchange rate (GBP/USD) trade -0.1% at UD$1.2559
The Pound is dipping lower versus the US Dollar for a second straight day on Wednesday. The Pound US Dollar exchange rate settled on Tuesday -0.2% at US$1.2577 following mixed UK labour market data and a record breaking rebound in US retail sales.
At 06:15 UTC, GBP/USD is trading -0.1% at US$1.2559 amid a slight risk off climate and weak UK inflation data.
Inflation a measured by consumer prices was flat in May compared to the previous month. This was a slight improvement on April’s -0.2% decline. On an annual basis, inflation increased just 0.5%, down from 0.8% in April. The readings were in line with expectations but well below the Bank of England’s 2% target.
Investors will now look ahead to the Bank of England monetary policy announcement tomorrow. The central bank is expected to leave interest rates unchanged at 0.1% and to add £100 billion of QE purchases. There could be further discussion surrounding negative interest rate but this isn’t a policy that the BoE are expected to adopt soon.
Risk sentiment is wavering on Wednesday amid growing concerns surrounding Asia. Firstly, the number of coronavirus cases are increasing again in Beijing. China has ramped up restrictions on people living in the capital in an attempt to stem the spread of this most serious flare up since February.
Secondly, geopolitical tensions between China and India are heating up after the Indian army reported a violent clash between the two sides which left 20 of its soldiers dead. In a separate incident, North Korea also blew up a joint liaison office set up in a small border town in 2018, in an attempt to create better relations with South Korea.
The risk off mood has boosted demand for the safe haven US Dollar, whilst dragging on riskier currencies, such as the Pound.
There is no high impacting US data due for release today. Investors continue to digest record smashing retail sales data from the previous session. US retail sales surged 17.7%, obliterating forecasts of an 8% increase and fully rebounding from April’s -16.6% record breaking drop.
