GBP Rallying On Fresh CPI Beat
GBP hasbeen back in demand this week as traders swing their attention back onto BOErate-hike expectations. The latest set of CPI data this week showed that UKinflation is far from slowing down with headline CPI hitting fresh 40-yearhighs in June at 9.4%. This marks the ninth consecutive month of CPI gains inthe UK, advancing from the prior month’s 9.1% reading and beating expectationsfor a 9.3% result. Core CPI was seen slightly lower at 5.8%, in line withexpectations though down from the prior month’s 5.9% reading.
Food Prices Surging
Commenting on the data, ONS chief economist Grant Fitzner said: “Annualinflation again rose to stand at its highest rate for over 40 years. Theincrease was driven by rising fuel and food prices; these were only slightlyoffset by falling second-hand car prices.”
Looking at the breakdown of the data, food prices were seen rising byalmost 10% on the year at 9.8%. On a monthly basis, food prices contributed1.2% of the overall CPI increase between May and June with milk, cheese andeggs are seen soaring in price.
BOE Open to .5% Hike in August
Looking ahead, CPI is expected to continue rising with the BOEforecasting a peak of 11% later this year before price pressures subside. However,with inflation still soaring, expectations of more aggressive BOE action aregrowing. Yesterday, we heard from BOE governor Bailey who warned markets that alarger .5% hike is up for discussion at the August meeting. However, Bailey waskeen to add that such a rate hike was not yet locked in and was merely on thetable in light of the current trajectory of inflation. Additionally, Baileynoted that the BOE will reduce its holding of government debt by between £50and £100 billion, due to be voted on by September.
GBP Upside Risks
With inflation showing no signs of slowing down and the UK still underpressure from the ongoing impact of the Ukraine war, as well as the regulatoryimpact from Brexit and residual COVID difficulties, price pressures lookunlikely to subside near-term. With this in mind, the market is now attaching ahigher probability to a larger hike in August, with GBP likely to remainsupported heading into the meeting.
Technical Views
GBPJPY
The bull trend in GBPJPY has stalled recently with price held up at the 168.39level. Price has settled into a range between that level and support at the159.98 level. However, price is now heading back up towards resistance and,with both MACD and RSI turned bullish, there are fresh risks of an upside breaktowards 175.01.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.