Sterling dips but bounces on GDP data

Sterling had a bad afternoon at the office on Wednesday as traders girded their loins ahead of this morning’s UK economic growth data. Britain’s gross domestic product for the year to March shows a growth of 8.7%. That is a shade below the 9% forecast and the growth in the three months to March was 0.8%, which was also below the market expectations. However, these are still healthy growth levels and that prompted a relief rally in the early hours of this morning. The pound was unable to make gains against the resurgent US dollar but it has bounced against the likes of the euro and Australian dollars. GBPEUR is back above €1.1650 and GBPAUD is hovering around AUD 1.77 again.

USD rallies as inflation beats forecasts

At 8.3% in the year to April, US headline inflation was notably stronger than the markets had forecast. Core inflation which strips out the more volatile elements of food and energy was also elevated at 6.2%. All of that heaps pressure on the Federal Reserve which will need to be seen to act, having stated its aim of controlling inflation. Hence, The US dollar had a day of strengthening. The GBPUSD rate dropped to $1.2185, the lowest it has been since May 2020. The EURUSD rate did likewise; down to $1.0445. That’s the lowest level since December 2002. If this afternoon’s US employment data; the weekly jobless claims, is as strong as forecasts, we could see further USD strength in the afternoon session.

Asian markets react to the Finance Minister’s commitment & risk aversion

Interestingly, Although the USD strengthened in most areas, the USDJPY rate, which has been very elevated of late, continued to fall. That pair was up at JPY 131.30 on Monday but is currently trading at JPY 129.05. That may have something to do with the stated aim of the group of finance ministers from Japan, China, and South Korea, who committed to using support measures to maintain ‘financial market stability and long-term fiscal sustainability. The nature of those measures was not specified and it is hard to see what China can do on that front when they’re battling significant covid outbreaks with stringent lockdowns.

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