July 18, 2022 02:12 AM ET
By: AnalysisWatch
The GBP/USD pair has recovered strongly after a slight correction towards 1.1880 in early European trading. The currency pair has regained its daily low at 1.1908 and is expected to rise further amid the sell-off in the US Dollar Index (DXY).
The DXY has fallen to near 107.80 and is likely to extend its losses as investors believe that price pressures in the US economy have peaked. This consensus is supported by weak oil prices in July and likely lower aggregate demand. The expectation that aggregate demand will weaken will drive commodity prices down, providing some relief from inflation. However, the odds of a mega rate hike by the Federal Reserve (Fed) remain stable.
In the UK, investors are waiting for the release of employment figures and inflation data. The unemployment rate is estimated to be stable at 3.8%. The main focus will continue to be on the average hourly wage data. At a time when people are facing headwinds from rapidly rising inflation, lower earnings will dampen market sentiment.
The U.K. Consumer Price Index (CPI) is estimated at 9.3%, higher than the 9.1% previously recorded. The core CPI may also improve marginally to 6% from 5.9% previously. This will prompt the Bank of England (BOE) to raise interest rates further.
Meanwhile, investors have ignored the political jitters in the UK economy. Rishi Sunak tops the list of contenders for Conservative Party leader and British Prime Minister. It will be interesting to see who will take the second place and go head-to-head with Sunak.
Comments