Home Daily Commentaries Inflation data comes into focus for the pound

Inflation data comes into focus for the pound

Daily Currency Update

Economists at Rabobank expect the British Pound to remain under downward pressure over the coming months, stating that, “Currently, the UK is the only G7 economy not to have recovered to its pre-pandemic levels. In addition to weak growth, the UK economy is characterised by high inflation, low productivity, weak investment growth, post-Brexit trade frictions, and a current account deficit.” They also “continue to expect GBPEUR to edge to 1.11 by the middle of the year and see scope for further dips below 1.20 for GBPUSD.”

All eyes are on tomorrow's UK CPI reading, which will provide the market with clues on how the Bank of England's latest bout of interest rate hikes will feed through to inflation. The bank’s target is to bring inflation back down to 2%, and with previous readings above 10%, there is a long way to go. The US has recently seen its CPI drop to 6%, and similar postings in the UK could see another round of Sterling selling, as the market speculates a slowdown in monetary tightening and the need for the UK central bank to cut rates later in the year.

This morning’s UK claimant count change came in at 12.9k, less than the forecasted 17.9k. Unemployment data was unchanged, released at 3.7% as it was previously. The market is looking for robust UK economic data, which is very much in the spotlight now. If the economy continues to show signs of weakness, the market will continue to lack confidence in the pound, which has been one of the worst-performing currencies in the last 12 months.

Key Movers

In her speech yesterday, US Fed Member Michelle Bowman said that she believes they are still far from achieving price stability, adding the US central bank would continue to raise interest rates to bring inflation below 2%. Still, she said that there would be a lot of data between now and the next Fed’s monetary policy meeting, adding that she will be looking for “consistent evidence” that inflation is on a downward path to define whether they have achieved a restrictive stance. The US Dollar is struggling to extend its recovery since the last Fed meeting.

The focus is on today's US CPI data release at 1.30 pm, with mixed sentiment for the reading. A softer-than-expected posting would reinforce market expectations that the Fed could bring a pause to its policy tightening after the first quarter, prompting possible fresh selling around the US Dollar.

On Wednesday afternoon we will see FOMC Members Logan, Harker & Williams speaking, but the more notable releases will be both Core Retail and Retail Sales m/m.


Expected Ranges

  • GBP/USD: 1.2135 - 1.2225 ▲
  • GBP/EUR: 1.1285 - 1.1360 ▲
  • GBP/AUD: 1.7415 - 1.7635 ▲
  • EUR/USD: 1.0680 - 1.0775 ▲