- Inflation surges amidst increasing food and transportation prices.
- UK inflation hovers at 4-decade highs.
- Sterling appears weak.
UK inflation touched new 40-year peaks yesterday, exceeding the 9.3% expectations while maintaining upsides from its previous 9.1%, currently at 9.4%. Indeed, the data wasn’t a surprise for many. Furthermore, the BOE has cautioned about the UK inflation hitting the double-digit region before the year ends.
Nevertheless, yesterday’s stats belonged to June, too earlier than the central bank’s end-year projections. Meanwhile, the current surge in services and goods prices in the UK shows a deepening living cost crisis.
Furthermore, it reflects the danger the National Institute of Economic & Social Research (NIESR) forecast of inflation peaking at 11% by 2022 end. Inflation might surpass NIESR prediction if nothing shifts in the coming six months. What does that imply for the pound?
Transport Contributing to Surged Inflation
It’s worth evaluating the report’s details before considering the effects of yesterday’s inflation data on the British pound. Transportation accounted for the change in the yearly inflation rate. The following ones include hotels & restaurants, food, and non-alcoholic drinks.
The Weak Sterling
The Sterling, or the British pound, barely responded to the news, probably as expected following BOE’s warning. However, you can’t ignore that the sterling is among the weakest currency in G10 nations. Evaluating the sterling’s 2022 performance shows it lost around 20 ‘big’ figures against the USD. Remember, one ‘big’ figure means 1,000 pips points.
What if GBP isn’t weak, but the USD is stronger? A good point. However, what about the EUR-GBP exchange rate?
The euro deteriorated after Russia attacked Ukraine. Yet, the common currency currently hovered beyond its 2022 opening, despite the BOE raising interest rates several times, whereas the ECB refrained from rate hikes.
Generally, its shows that yesterday’s inflation data isn’t lucrative for the sterling. Weak currencies amidst surging costs of services and goods hardly attract investors. Nevertheless, inflation remains a concern in the global economy, with most nations recording historical highs in inflation figures.
What are your thoughts about the above content? Stay tuned for developing news in the financial world.
