Pound seeks to recover as inflation meets forecasts

• UK CPI Y/Y: 2.0% vs 2.0% exp. Prior 2.1%

• Pound moves off 5-month low

• GBPUSD in focus over the Fed

Ahead of tomorrow’s Bank of England rate decision there has been no surprises in the release of the latest inflation figures, with rate-setters still all but certain to make no significant changes to monetary policy. Headline inflation of 2.0% Y/Y for May met both the consensus forecast and the Bank of England’s target but due to the ongoing Brexit uncertainty it is unlikely that Governor Carney follows the ECB or the expected move from the Fed in delivering a dovish turn. The core reading of 1.7% Y/Y is often seen as a fairer gauge of price pressures and this remains comfortably below the bank’s threshold.

UK inflation continues to drift lower in the longer-term trend with the headline CPI at the inflation target and the core reading below it. Source: XTB Macrobond

Yesterday, the pound fell to a 5-month low against both the US dollar and the Euro but there has been a bit of a bounce and a positive reaction since. Looking ahead there’s a case to be made for the pound to pare some of its recent losses against the Euro and US dollar, although this is more likely to be driven by the other side of the pair with policy in Frankfurt and Washington expected to become more accommodative while in London Carney & Co remain in wait-and-see mode on Brexit - like the rest of us.    

Then there were 5

The second round of voting by MPs saw Dominc Raab eliminated from the Tory leadership race with the 5 remaining candidates taking part in a televised debate yesterday evening. Boris Johnson remains the firm favourite and after ducking an invitation to participate in a Channel 4 debate on Sunday evening, the former Brexit secretary took part last night. There was little from any of them which we didn’t already know and the event left an overall feeling of disappointment with none of the candidates particularly inspiring. In terms of who fared best it’s hard to say, but Boris will probably be most happy with how it went as he managed to avoid dropping any clangers - and unless he does in the coming days it’s looking increasingly likely that he will soon be moving into number 10. The 3rd round voting will take place later today with the results expected around 6PM, with the MP with the lowest number of votes to be eliminated.

GBPUSD bounced from the 1.25 handle and with both the UK and US central banks set to announce the outcome of their latest policy decisions in just a little over 24 hours it could be a volatile time for this market. Source: xStation