What’s going on here?
On June 26, 2024, the pound slipped 0.2% to $1.2661 as a steady dollar gained strength, keeping traders vigilant with the imminent US inflation data release.
What does this mean?
The pound’s dip comes despite Britain’s high inflation for services and wages, suggesting the Bank of England might limit rate cuts to support bond yields and the currency. This resilience has kept the pound down just 0.4% against the dollar this year, better than the euro’s 3% drop and the yen’s 13% plummet. Meanwhile, the euro fell 0.1% against the pound to 84.37 pence, nearing a two-year low caused by France’s political turbulence. Markets are now focusing on the upcoming US PCE inflation data, which could influence Federal Reserve policy and shake currency markets.
Why should I care?
For markets: The suspense builds as inflation data looms.
Traders are on edge waiting for US PCE inflation data on Friday, which will shape Federal Reserve policy and potentially impact currency markets. The dollar’s index rise to 105.88, reflecting its strength against six major currencies, highlights the greenback’s dominance. Investors should keep an eye on how these inflation figures could tilt the market balance.
The bigger picture: Political stability boosts the pound.
In the UK, expectations of a Labour Party victory in the upcoming election have bolstered sterling, promising political stability. However, risks remain regarding Labour’s specific taxation and spending plans compared to previous Conservative policies. Regardless, analysts stress that the Bank of England’s interest rate decisions will be the primary driver of the pound’s performance this year, not the election outcome.
