UK inflation dynamics recorded their slowest pace of growth in over a year in June, triggering a sharp depreciation of the pound against other G10 currencies and the US dollar in particular. This is primarily the aftermath of a drop in expectations of more hawkish UK interest rate rises and a sharp reaction in 2-year UK government bond yields, which recorded their biggest drop since March this year.
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Create account Try a demo Download mobile app Download mobile appNo signs of a 'hot' summer when it comes to UK inflation. Macroeconomic indicators are surprisingly on the downside. Core CPI in the Isles pleases the BoE (smoothest m/m since January). The good news is that more disinflation is coming due to PPI deflation. Expectations of a 50bp hike at the next BoE meeting in August are falling, nevertheless the market is still not sure. Swaps currently imply a 46% chance of a 50bp hike at the BoE meeting in August. Source: Bloomberg
The detailed inflation data are performing better, nevertheless there is still no sustainable resolution of the inflationary dynamics going forward. Services maintain their dynamics, with food prices surprising on the upside. Source: ONS.GOV
On the other hand, Jeremy Hunt, UK Finance Minister, commented that inflation levels are still not at acceptable levels and high prices pose a threat to UK families and businesses.
The GBPUSD pair goes below the psychological barrier of 1.3 and paves the way to the next important support levels set by the 200-week EMA (golden curve) and the abolition of the 61.8% Fibo of the February 2021 downtrend wave. It is worth bearing in mind, however, that the market does not seem to be unduly changing expectations for further rises, so the risk of a continuation of the ongoing upward wave is still there. Source: xStation 5
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