- The Pound Sterling jumps to 1.2750 as UK inflation for April remains hotter than expected.
- UK annual core inflation rose by 3.9%, likely impacting BoE rate-cut hopes for August.
- The next move in the US Dollar will be guided by the FOMC minutes.
The Pound Sterling (GBP) rallies to 1.2750 in Wednesday’s European session as the United Kingdom (UK) Office for National Statistics (ONS) has reported a slower-than-expected decline in the Consumer Price Index (CPI) data for April. UK inflationary pressures remained hotter than estimates but have softened significantly from March figures, suggesting that higher interest rates by the Bank of England (BoE) are maintaining downward pressure on inflation.
A slower decline in UK inflation is expected to negatively impact expectations for BoE rate cuts, which financial markets expect the central bank will begin from the August meeting. The major trigger that has spoiled expectations for BoE rate cuts is the annual service inflation, which decelerated modestly to 6.0% from the former reading of 6.1%, remaining the crucial barrier for inflation towards the 2% path.
The speculation for the BoE to begin reducing borrowing costs in August strengthened after BoE Deputy Governor Ben Broadbent commented on Monday: “If things continue to evolve with its forecasts – forecasts that suggest policy will have to become less restrictive at some point – then it’s possible Bank Rate could be cut sometime over the summer,” Reuters reported.
Daily digest market movers: Pound Sterling adds significant gains after hot UK CPI report
- The Pound Sterling soars to 1.2750 as the UK ONS has reported a higher-than-expected growth in the consumer price inflation data for April. Headline inflation rose 2.3% year-over-year (YoY), higher than expectations of 2.1% but decreasing from the prior reading of 3.3%. Monthly headline inflation grew by 0.3%, beating the estimate of 0.2% but lowering sharply from March’s reading of 0.6%.
- UK’s annual core CPI data, which strips off volatile items such as food and energy prices, grew by 3.9% (YoY), above the consensus of 3.6% but decelerated from March’s reading of 4.2%. The core inflation data is the Bank of England’s preferred inflation measure for decision-making on interest rates. Though the inflation grew stronger than expectations, it is on course to return to the 2% target.
- On the other side of the Atlantic, uncertainty about when the Federal Reserve (Fed) will start reducing interest rates has deepened. Fed policymakers advised keeping interest rates at their current levels until they get evidence that inflation will sustainably decline to the desired rate of 2%. Though progress in the disinflation process has been restarted after stalling for three straight months at the beginning of the year, Fed policymakers lack confidence that it will last long.
- Like other Fed policymakers, Cleveland Fed Bank President Loretta Mester said on Tuesday that she wants to see inflation declining few more months to be sure that inflation is on course to return to 2% before considering rate cuts.
- The US Dollar (USD) remains in a sideways trend as the Fed’s hawkish stance on interest rates has supported the downside while firm speculation that the central bank will start lowering interest rates from the September meeting has limited the upside. Going forward, investors will focus on the Federal Open Market Committee (FOMC) minutes for the May meeting on Wednesday. The FOMC minutes will provide more guidance on the interest rate outlook.
Technical Analysis: Pound Sterling prints a fresh two-month high at 1.2750
The Pound Sterling approaches a nine-month high at around 1.2900 registered in early March. The appeal for the GBP/USD pair has strengthened as it has comfortably stabilized above the 61.8% Fibonacci retracement (plotted from the March 8 high of 1.2900 to the April 22 low at 1.2300) at 1.2667.
The Cable is expected to remain in the bullish trajectory as all short-to-long-term Exponential Moving Averages (EMAs) are sloping higher, suggesting a strong uptrend.
The 14-period Relative Strength Index (RSI) has shifted into the bullish range of 60.00-80.00, suggesting that the momentum has leaned toward the upside.
Pound Sterling price today
British Pound PRICE Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.08% | -0.19% | 0.16% | -0.02% | -0.01% | -0.56% | 0.27% | |
| EUR | -0.08% | -0.27% | 0.07% | -0.09% | -0.08% | -0.64% | 0.18% | |
| GBP | 0.19% | 0.27% | 0.36% | 0.15% | 0.20% | -0.36% | 0.46% | |
| JPY | -0.16% | -0.07% | -0.36% | -0.20% | -0.18% | -0.71% | 0.11% | |
| CAD | 0.02% | 0.09% | -0.15% | 0.20% | 0.00% | -0.51% | 0.27% | |
| AUD | 0.01% | 0.08% | -0.20% | 0.18% | -0.01% | -0.54% | 0.30% | |
| NZD | 0.56% | 0.64% | 0.36% | 0.71% | 0.51% | 0.54% | 0.81% | |
| CHF | -0.27% | -0.18% | -0.46% | -0.11% | -0.27% | -0.30% | -0.81% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.