GBP struggled to hold onto initial gains following the upside surprise on CPI yesterday morning. The fall in GBP is very telling and it shows markets are concerned about the economy's slowing backdrop. Furthermore, today’s CPI numbers are adding to stagflation worries. UK 10-year yields suffered their biggest drop in a month. The UK has the highest inflation in the G7 and is lagging behind, France, Germany and the US with regards economic productivity.
USD was volatile over the afternoon, after Trump called on Federal Reserve Governor Lisa Cook to resign, citing Federal Housing Finance Agency Director Bill Pulte’s allegations regarding a pair of Cook’s mortgages.
The FOMC minutes in the evening revealed that more Fed members saw inflation risks outweighing job market concerns.
*Daily move - against G10 rates at 7:00 am, 21.08.25
** Indicative rates - interbank rates at 7:00 am, 21.08.25
Today we have the first gauge of economic activity in August with focus on the UK numbers and whether they add further concerns about the economy or not. Markets are expecting the composite number to show further expansion across services and manufacturing, suggesting a miss could add to further decline on GBP thus adding to stagflation concerns.
EU and US numbers suggest a slowdown in activity.
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