Currency news / May 22, 2025

UK Inflation rises to 3.5%

3 min read Lawrence Kaplin

Lawrence KaplinMay 22, 2025

Market snapshot:

USD: Government debt worries intensify
EUR: Inflation target in sight
GBP: 3-year highs v USD

Yesterday's currency recap

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.

Today's GBP rates

Currency pair	Daily move*	Indicative rate**
GBPAUD	-0.06%	2.084
GBPCAD	0.01%	1.8595
GBPCHF	0.02%	1.1073
GBPDKK	0.06%	8.8402
GBPEUR	0.07%	1.185
GBPJPY	-0.25%	192.3
GBPNOK	0.01%	13.655
GBPNZD	0.28%	2.266
GBPSEK	0.02%	12.85
GBPUSD	0.05%	1.3425

*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

Key data points

Currency	Event	Period	Consensus	Previous
EUR	EU Manufacturing PMI	May	49.3	49
EUR	EU Services PMI	May	50.3	51
EUR	EU Composite PMI	May	51	50.43
GBP	UK Public Sector Net Borrowing	April	17.9b	16.44b
GBP	UK Manufacturing PMI	May	46	45.4
GBP	UK Services PMI	May	50	49
GBP	UK Composite PMI	May	49.3	48.5
USD	US Manufacturing PMI	May	50.1	50.2
USD	US Services PMI	May	50.8	50.8
USD	US Composite PMI	May	n/a	50.60
USD	Initial Jobless Claims	weekly	230k	229k

Today's speeches

US Fed's Williams

What we think

USD remains under considerable pressure as rising longer-term US borrowing costs weigh heavily on market sentiment. The chaotic tariffrollout 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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