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After several years of rocketing costs, UK inflation finally fell back down to 2% in May, its lowest level since July 2021. The pound rose this morning on the news, as although May’s figure was well below last month’s 2.3%, it did not dip down below the key 2% threshold as some had predicted.
Yesterday, weaker than expected US retail sales had heaped pressure on the US dollar. Retail sales rose by 0.1% in May, versus a projected rise of 0.2%. The US dollar lost half a cent to the euro and the pound on the news, but swiftly rebounded as technical dynamics held sway.
Over the course of Tuesday, the US dollar rose, fell, then rose again versus its continental peers. GBP/EUR moved by a negligible 0.1% but has now fallen back from recent highs.
Those US retail sales were considered key by financial markets. To many, they represented a signpost as to the Federal Reserve’s interest rate policy. However, considering the amount of high-stakes guesswork that goes on in currency markets, it would be prudent not to take anything for granted.
In British supermarkets, the pace of grocery inflation also slowed, this time to its lowest since 2021. Remarkably (and somewhat unbelievably), this marked the 16th consecutive fall in monthly price rises, which grew by 2.1% in June.
Investors in French bonds could soon demand a massive premium to hold them. According to Bloomberg, recent election campaigning has seen Marine Le Pen’s party pledge unfunded tax cuts and a reduction of the civil service retirement age to 60, leading to fears of ballooning debt to GDP ratios.
Board members of Hargreaves Lansdown, the UK’s largest investment site, are set to unanimously recommend a takeover bid led by private equity firm CVC. The deal would value Hargreaves Lansdown at over £5bn, substantially more than previous offers.
Electoral campaigns rumble on in the UK, France and the United States. Keir Starmer appeared on a radio phone-in on Tuesday, while the BBC added an extra debate to its schedule given how well Reform have been polling.
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GBP: More pressure
Sterling has struggled to build on last week’s rapid rises this time around. In fact, the pound could soon come under further pressure, with the Bank of England’s interest rate decision due tomorrow lunchtime.
GBP/USD: the past year
EUR: Mixed bag
The ZEW Economic sentiment index had a mixed message for the German economy. On the one hand, the survey score increased to 47.5, the highest level since February 2022. On the other hand, that was actually under forecasts of 50, which would represent a neutral score.
GBP/EUR: the past year
USD: Consumer weakness
Dwindling retail sales were taken as a sign of some softness within US consumer markets. Perhaps markets read too much into this with regard to interest rates, but spending levels do at least seem to be trending in the right direction.
EUR/USD: the past year
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