Home Daily Commentaries UK inflation remains above 10%

UK inflation remains above 10%

Daily Currency Update

The Bank of England remains stuck between a rock and a hard place as UK inflation remains stubbornly high at 10.1%. Yesterday’s surprise pickup in UK wages was followed up this morning by a CPI print which suggested that more may be needed from the central bank in terms of monetary tightening, a sentiment that could continue to bolster the pound. A 25bp rate hike by the Bank of England looks more likely now and the lack of evidence of desirable descending paths in inflation and wages could make the pound a popular choice in the coming weeks and could provide the impetus for a break above 1.25 against the US Dollar.

Key Movers

Two weeks away from the FOMC May announcement, and markets are now almost fully pricing a rate hike of 25 basis points, but the dollar is struggling to lay the basis of a sustainable recovery. Disputes between the US and China have arisen over Taiwan, spying allegations, technology security, and Russia’s war in Ukraine. The worsening relations between these two global powerhouses could yield another bout of risk aversion in the coming weeks, which would only help the US Dollar regain some footing. There are quite a few reports that China is readying to attack Taiwan, even resulting in EU leader Ursula Von Der Leyen warning China against using force against Taiwan.

German ZEW disappointed the market yesterday, coming in well below expectations at 4.1 versus expectations of 15.5. The Euro has weakened over the course of yesterday and today's ECB non-policy meeting could provide information about policy decisions for the May meeting which could impact Euro volatility.

Expected Ranges

  • GBP/USD: 1.2360 - 1.2425 ▼
  • GBP/EUR: 1.1320 - 1.1390 ▲
  • GBP/AUD: 1.8320 - 1.8670 ▼
  • EUR/USD: 1.0860 - 1.0945 ▼