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UK Inflation Report: GBP Outlook Driven by CPI in Near-Term | Webinar

UK Inflation Report: GBP Outlook Driven by CPI in Near-Term | Webinar

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Easing Inflation Reduces Rate Hike Bets

UK Inflation has continued to ease, having peaked at 3.1% at the back end of last year. CPI hovers at 1-year lows of 2.4% (falling from 2.5%), as the GBP depreciation effects on inflation following the Brexit referendum dissipates. As such, this reduces the necessity for the Bank of England to raise interest rates with inflation seemingly returning towards the central banks 2% target, which has been reflected in market pricing. OIS markets (Overnight Index Swaps) are now pricing in a 33% chance of an August rate hike, down from 40%, while a November rate hike is seen at 72%. In the wake of the inflation report, GBP fell to fresh 2018 lows against the US Dollar with the pair now firmly below the 1.3400 figure and looking to make a test for the 1.3300 handle.

Source: Thomson Reuters

As a reminder, last week saw the most recent BoE Quarterly Inflation Report in which the central bank lowered their CPI forecast across the 3-year horizon, while also noting that GBP depreciation effects on inflation may unwind further than previously thought.


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--- Written by Justin McQueen, Market Analyst

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.