Key Takeaways
- 💷 Sterling saw a slight increase after the release of UK inflation data
- 📈 Inflation figures were higher than expected, which supported the pound
- 🇬🇧 UK consumer prices rose 0.7% in March, exceeding forecasts
- 💷 British inflation returned to the Bank of England’s 2% target in May
- 📉 Annual consumer price inflation dropped from April’s 2.3% to 2%
- 📉 Euro dropped slightly against the pound after the data release
- 💵 Sterling edged up slightly against the dollar
- 📊 Markets are pricing in a 50% chance of a first rate cut by August and monetary easing in 2024
- 🏦 BoE meeting on Thursday expected to discuss interest-rate policy but not make any changes.
- 💰 Soft U.S. retail sales data increases bets on Federal Reserve rate cuts
- 🇪🇺 Euro weighs down the dollar index due to political uncertainties in France
- 🇺🇸 Markets predict a 67% chance of Fed easing rates in September
- 🇦🇺 Australian dollar outperforms due to hawkish Reserve Bank stance
- 🇯🇵 Yen sees little change due to interest rate differentials with the U.S.
Currency Markets React to UK and Global Economic Data
The currency markets have been reacting to the latest UK inflation data release, which showed a higher than expected increase in consumer prices. This supported the pound, with sterling seeing a slight increase against both the euro and the dollar. The annual consumer price inflation in the UK dropped to 2% from April’s 2.3%, returning to the Bank of England’s 2% target in May.
In contrast, the euro dropped slightly against the pound due to political uncertainties in France, which weighed down the dollar index. Market participants are now pricing in a 50% chance of a first rate cut by August and monetary easing in 2024. The upcoming Bank of England meeting on Thursday is expected to discuss interest-rate policy, although no changes are anticipated.
On the global front, soft U.S. retail sales data have increased bets on Federal Reserve rate cuts, with markets predicting a 67% chance of easing rates in September. However, the Australian dollar has outperformed due to the hawkish stance of the Reserve Bank, while the yen has seen little change influenced by interest rate differentials with the U.S.