Amid concerns over a potential global economic slowdown, the US dollar weakened after the release of the latest US inflation data. The inflation rate declined from 3% in June to 2.9% in July, compared to the projection of 3%. The Core Inflation Rate lowered from 3.2% to 3.3%, aligning with forecasts. The downward inflation trend may complicate future policy decisions for the US Federal Reserve.

Impact on GBP/USD

GBP/USD traded below 1.28500 after the release of the Consumer Price Index (CPI) inflation data from the UK (2.2% y/y) and the US (2.9% y/y). Both reports were softer than expected, influencing traders' expectations of upcoming rate cuts by the Fed and BoE. The UK's Gross Domestic Product (GDP) is likely to bounce to 0.9% from the previous 0.3%, and the US Retail Sales reports are expected to recover to 0.3% after a flat 0.0% in June. Upcoming economic data may lead to downside momentum in the GBP/USD pair.

Impact on USD/CAD

The USD/CAD pair struggles to recover despite a soft US Producer Price Index (PPI) report for July and increased commodity prices. Rising geopolitical concerns in the Middle East and the speculated Fed interest rate cuts in September could support the Canadian Dollar. Currently trading at the 1.3750 level, USD/CAD may decline due to a speculated 25-bps rate cut by the Bank of Canada (BoC) in September.

Impact on USD/JPY

The USD/JPY remains flat around 147.00 despite Japan's better-than-expected GDP numbers. Japan's GDP grew at an annualised rate of 3.1% in Q2 of 2024, strengthening the Japanese Yen. The US's latest inflation data indicated a moderate rise in the consumer price index, keeping the pair stable. Economic indicators from Japan and the US may influence fluctuations in the USD/JPY pair.

Impact on EUR/USD

The EUR/USD surged to a new high above the 1.1000 level after a soft US inflation report. Upcoming Q2 Gross Domestic Product (GDP) estimates and interest rate cuts by the European Central Bank could strengthen the Euro, supporting the EUR/USD currency pair. However, the market volatility around the monetary policy decisions and other US economic indicators can impact EUR/USD.

Market Overview

The latest inflation data from the UK and the US, combined with geopolitical uncertainties, have strained in financial markets. While the GBP struggles to gain momentum amid inflationary pressures and market expectations, the US dollar’s instability due to CPI report has influenced fluctuations in currency pairs such as GBP/USD, USD/CAD, USD/JPY, and EUR/USD.

Stay Ahead in the Currency Game

Whether you're a daily FX trader or handle international transactions regularly, our 'Currency Pulse' newsletter delivers the news you need to make more informed decisions. Receive concise updates and in-depth insights directly in your LinkedIn feed.

Subscribe to 'Currency Pulse' now and never miss a beat in the currency markets!

Ready to act on today’s insights? Get a free quote or give us a call on: +44 (0)20 7740 0000 to connect with a dedicated portfolio manager for tailored support.

Important: This blog is for informational purposes only and should not be considered financial advice. Currency Solutions does not consider individual investment goals, financial circumstances, or specific requirements of readers. We do not endorse or recommend any particular financial strategies or products discussed. Currency Solutions provides this content as is, without any guarantees of completeness, accuracy, or timeliness.