Sterling was on the front foot yesterday, benefitting from the release of a decent set of labour market data. The currency has received a further boost this morning from a strong set of UK CPI inflation figures for August, with the headline rate surging to 3.2% y o y from 2% in July.
To an extent, the increase in UK inflation reflects base effects associated with last years’ Eat Out to Help Out scheme, which temporarily pushed hospitality prices lower in 2020. However, on an underlying basis, inflationary pressures remain robust, reflecting tightness in labour markets and the persistence of significant supply-side issues.
US CPI data for August was also released yesterday, with the YOY rate of inflation easing slightly to 5.3% from 5.4% on the back of a sharp decline in used car prices. This initially coincided with some modest dollar weakness, though the move was not sustained.
In level terms, GBP/USD is trading this morning back in the upper half of the $1.38 1.39 range, while EUR/USD remains pinned at the $1.18 threshold. At the same time, GBP/EUR has pushed back up toward the midpoint of the €1.17 1.18 range.
Looking to the day ahead, there is little else out to influence currency markets, suggesting the action could be contained to a relatively tight range.
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