Sterling rose to a 3-year high versus the USD during yesterday's session, after UK inflation data came in at 3.5% - higher than forecast. Headline inflation rose to its highest level in more than a year with steep rises recorded in energy, water and council tax, as well as the recent rise in the minimum wage and employer NI contributions.
Elsewhere, the EUR maintained its recent resurgence against a weak USD, despite dovish commentary from an European Central Bank (ECB) member who stated “We may need rates below [the] neutral rate to prevent inflation sub 2%." This is an indication that they are close to achieving their long term 2% inflation goal and may have to lower rates below the 1.5% to 2% "neutral rate" to prevent undershooting their inflation target.
USD remained on the back foot as rising government debt worries continue to weigh heavily on the currency, with the upcoming US tax reduction bill only adding fuel to the fire lit by Moody's recent US debt downgrade.
*Daily move - against G10 rates at 4:00 pm BST, 21.05.25
** Indicative rates - interbank rates at 4:00 pm BST, 21.05.25
USD remains under considerable pressure as rising longer-term US borrowing costs weigh heavily on market sentiment. The chaotic tariff rollout has temporarily undermined its long held safe-haven status. It remains to be seen if this is indeed a short-term shift, or whether Trump's economic policies have caused a permanent change to the status quo.
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