Today UK inflation is at a forty-year high

EUR

Yesterday saw the US dollar give back gains posted in the past week as optimism grew in Europe. Reports suggested the European Central Bank were set to discuss the idea of a 50 basis points interest rates hike at their meeting this week, much to investors’ surprise.

The main concern for Europe is now Nord Stream 1, with its maintenance period set to end tomorrow. The pipeline that provides significant gas supplies to Europe has been shut off for the past ten days. Should the gas pipeline fail to restart tomorrow, the euro could be back under renewed pressure. Current reports suggest the pipeline is set to resume on time but may be running at a reduced capacity.

GBP

All eyes were on the latest inflation data released this morning. CPI year-on-year for the month of June came in at 9.4%, from the previous 9.1% and from the consensus of 9.3%. This now puts inflation in the UK at a forty-year high. The Bank of England will now have to make a decision as to how high they plan to raise interest rates at their next meeting. Yesterday BoE Governor Bailey said the prospect of a 50 basis points hike at the next meeting is most likely but there is evidence of a slowing economic growth and inflationary pressures. Both of these points would prevent the BoE from raising rates as much as they would prefer. While the rate increase is likely, Bailey commented that it is not locked in yet. However, following today’s inflation readings it is hard to see how the bank can avoid this.

Key announcements

07:00 – GBP – GDP CPI y/y – actual 9.4% vs forecast 9.3%
07:00 – GBP – GDP Core CPI y/y – actual 5.8% vs forecast 5.8%