GBP

The pound fell after the release of UK Inflation data on Wednesday morning. UK CPI rose to 9.1% year on year, which was inline with market expectations. The month-on-month increase was 0.7%, which is more than the consensus was looking for at 0.6% but a sharp decline on the previous figure of 2.5%.

Core inflation came in lower at 5.9% year on year, missing market expectation by 0.1%. Core inflation excludes out external influences such as global fuel prices and commodity prices, this suggests that inflation may have peaked hence the pound dropping off as a result.

The pound had a mixed reaction to the inflation data released, if inflation is lower then there is less need for the central bank to hike hence a softer pound. With inflation coming in line with market expectations and core inflation declining, this could mean the BOE may not look to tighten monetary policy aggressively so a 50 basis point rise may look unlike at the next policy rate decision.

USD

The dollar strengthened on Tuesday due to safe haven flow as investors turned nervous again about global growth prospects. Investors will now look towards FED chair Jerome Powell’s two day testimony to see if there are any clues in regards to whether a 75 basis point rise is likely in July’s policy meeting.

With the FED increasing interest rates by 75 basis points last week, there is a possibility for further rate hikes of such magnitude but Powell remained cautious in the commentary that followed stating they will take necessary action when needed to combat record high inflation.

Key announcements

GBP – 7:00 – CPI Y/Y – Actual 9.1% from previous 9%
GBP – 7:00 – Core CPI Y/Y – Actual 5.9% from previous 6.2%
USD – 2.30 – FED chair Powell testifies