Sterling slightly higher after inflation data
Sterling was trading a touch higher this morning as UK inflation showed an unexpected rise for the month of June.
Data from the Office for National Statistics (ONS) showed consumer price inflation rising from four year lows at 0.5% last month, to 0.6% for the month of June, beating forecasts of another dip lower to 0.4%. Core inflation which excludes items subjected to frequent pricing volatility also rose to 1.4% in June from 1.2% in May. The ONS attributed the appreciation in inflation to rising prices for games and recreational clothes/footwear. Despite June’s unexpected rise, economists have forecasted inflation to move lower in the months ahead as wage growth stays low and businesses drop prices to remain competitive and attract consumers.
The surprise uplift in inflation follows yesterday’s disappointing UK GDP release which fell below market expectations. Whilst contracting on an annualized basis, GDP showed marginal growth for the month of May and remained 24.5% lower than the month of February prior to lockdown. Analysts had forecasted growth of 5.5%, but data collated by the ONS showed the UK economy growing by a mere 1.8%.
The dollar edged lower against both the euro and sterling yesterday as the selloff in safe-haven assets continued to exert pressure on the dollar.
The initial sell of this week has been attributed to an improvement in investor risk appetite. Risk appetite was buoyed at the start of the week on hopes of a possible treatment for the coronavirus after US-based Gilead Sciences Inc reported that Remdesivir, an antiviral drug to treat Covid-19 could help reduce the number of fatalities.
In addition to this, yesterday saw the release of the latest US inflation figures for June. US inflation beat forecasts and rose from -0.1% to 0.2% month-on-month with the year-on-year figure also beating expectations to read 1.2%.
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