🔮 Better than the Oracle? Our Fair Value found this +42% bagger 5 months before Buffett bought itRead More

UK inflation proves to be stubborn as core CPI rises in April, GBP/USD rises

Published 22/05/2024, 08:29

Market pricing has tipped in favour of ‘no rate cut’ at the upcoming Bank of England (BoE) meeting in June after UK CPI came in higher than expected this morning. Markets were assigning a 50/50 chance of a rate cut in June before the CPI release according to data from Reuters. The probability of a cut has now dropped to 15%. It’s not that the data was bad, it just wasn’t as good as expected. As often happens, the initial reaction is driven by how the actual reading correlates to expectations, and in this case, inflation didn’t drop as much as hoped.

Consumer prices grew 2.3% in the year to April, a significant drop from the 3.2% in March, but not as low as the 2.1% anticipated. The month-on-month rate dropped from 0.6% to 0.3%. It is core inflation – which excludes volatile prices like energy and food – that has been closely monitored in recent months and could explain the hawkish reaction in markets. The monthly rise in core prices was not only higher than expected but also higher than the previous month, which can be seen as a serious concern for the BoE. YoY core CPI has dropped from 4.2% to 3.9%, above expectations of 3.6%.

UK inflation data for April

Source: refinitiv

The stronger data, specifically the stubbornness in core CPI, is making it harder for markets to believe the BoE can cut rates in June, or even during the summer. The first fully-price-in 25bps rate cut is now in November, with a 60/40 chance of a cut in September. These are likely to continue evolving over the coming days as markets fully digest the meaning of the data but it’s unlikely that the June meeting is a real contender for a rate cut any more. But we will have to wait for commentary from BoE officials to see how they factor the latest inflation data into their forecasts.

For markets, the stronger CPI reading has favoured the pound and weighed on the FTSE 100 as expected. As currency pairs continue to be driven by rate differentials, the pushback in rate cut expectations has levelled the BoE to the Federal Reserve with regards to timing, which has allowed GBP/USD to break above recent short-term resistance and cover some further ground. The bullish momentum looks to be strong with the path of least resistance pointing higher, but traders should be aware of overbought conditions creeping up, with the RSI nearing the 70 mark, which has been an area of reversal for the past six months. The 1.28 mark likely remains a key focus for buyers over the coming days, but there seems to be a fair amount of resistance along the way.

GBP/USD daily chart

Past performance is not a reliable indicator of future results.

Disclaimer: This is for information and learning purposes only. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance. Social media channels are not relevant for UK residents.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 84.01% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.

The information provided is not to be considered investment advice or investment research. Capital.com will not be liable for any losses from the use of the information provided.'

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.