On Friday, the foreign exchange market literally flipped on its head. The GBP/USD currency pair fell back below the 1.3550 level. The US Dollar is under heavy buying pressure again today. This move takes place as we look ahead to the next University of Michigan Consumer Sentiment data, fueling another significant drop.
In reaction to mixed economic data released in the UK, GBP/USD plummeted during the European session. This data was not strong enough to support the Pound Sterling. Today’s release coincided with figures from the OBR brand new for July, revealing no growth in UK GDP, equal to market expectations. Furthermore, weak industrial output data piled on the disappointing economic outlook furthering the currency’s weakness.
As speculators re-positioned ahead of the US preliminary Consumer Sentiment data, the US Dollar enjoyed new bids. This new sentiment data will provide an important window into our community’s outlook for Federal Reserve policy. This would make its release even more extraordinary.
Inflation trends have continued to upend the economy. In August, inflation picked up slightly across the major economies, but in most cases it was a modest upturn at that. We can see tariff costs beginning to ripple through the economy. Their net impact on final consumer prices remains small.
At the same time, the EUR/USD exchange rate dropped down to 1.1700, after being turned away from 1.1750 during European trading. A newly resurgent US Dollar behind this move is taking its toll. Speculators are increasing demand as they look ahead to the release of key consumer data.
The divergence in inflation expectations between the US and other global economies continues to be a focal point for analysts. As noted by FXStreet, “Global inflation watch: Tariff pass-through still in progress.” This underscores that although inflation is a real concern around the globe, the dynamics at play here in the US are changing in different ways.