Breaking: UK CPI inflation steadies at 2.0% YoY in June, as expected

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Breaking: UK CPI inflation steadies at 2.0% YoY in June, as expected

United Kingdom annual CPI rose 2.0% in June vs. 2.0% forecast.
British inflation eases to 0.src% MoM in June, meets estimates.
GBP/USD rises toward src.3000 after UK CPI inflation data.

The United Kingdom (UK) Consumer Price Index (CPI) rose 2.0% in the year to June, having increased by 2.0% in May, according to the data released by the Office for National Statistics (ONS) on Wednesday. 

The market consensus was for a 2.0% growth and the reading remained at the Bank of England’s (BoE) 2.0% target.

Core CPI (excluding volatile food and energy items) climbed 3.5% YoY in June, at the same pace as in May while matching the market forecast.

The UK June Services CPI inflation held steady at 5.7% YoY.

Meanwhile, the UK Consumer Price Index increased by 0.src% MoM in June, compared to a 0.3% acceleration in May and as expected 0.src%.

GBP/USD reaction to the UK CPI inflation data

The UK CPI data puts a fresh bid under the Pound Sterling, as the GBP/USD pair rises toward src.3000. The pair is trading 0.08% higher on the day to trade near src.2980, as of writing.

GBP/USD: src5-minutes chart

British Pound PRICE Today

The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the Canadian Dollar.

 
USD
EUR
GBP
JPY
CAD
AUD
NZD
CHF

USD
 
-0.03%
-0.02%
-0.24%
0.04%
0.03%
-0.27%
-0.00%

EUR
0.03%
 
0.04%
-0.2src%
0.07%
0.05%
-0.26%
0.04%

GBP
0.02%
-0.04%
 
-0.25%
0.04%
0.04%
-0.30%
0.0src%

JPY
0.24%
0.2src%
0.25%
 
0.26%
0.28%
-0.06%
0.26%

CAD
-0.04%
-0.07%
-0.04%
-0.26%
 
-0.0src%
-0.32%
-0.02%

AUD
-0.03%
-0.05%
-0.04%
-0.28%
0.0src%
 
-0.3src%
-0.03%

NZD
0.27%
0.26%
0.30%
0.06%
0.32%
0.3src%
 
0.29%

CHF
0.00%
-0.04%
-0.0src%
-0.26%
0.02%
0.03%
-0.29%
 

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).

This section below was published at 02:src5 GMT as a preview of the UK Consumer Price Index (CPI) data.

United Kingdom’s CPI report will be published by the Office for National Statistics on Wednesday.
The annual UK headline and core inflation are expected to hold steady in June.
The UK CPI data could revive BoE August interest rate cut bets, rocking the Pound Sterling.

The high-impact Consumer Price Index (CPI) data for June from the United Kingdom (UK) will be published by the Office for National Statistics (ONS) on Wednesday at 06:00 GMT.

The UK CPI inflation report could reinforce expectations of an interest-rate cut by the Bank of England (BoE) in August, with volatility set to spike around the Pound Sterling.

What to expect from the next UK inflation report?

The UK Consumer Price Index is expected to rise at an annual rate of 2.0% in June, at the same pace as in May, sitting at the BoE’s 2.0% target.

Core CPI inflation is likely to stay unchanged at 3.5% YoY in June. Meanwhile, the British monthly CPI is seen rising 0.src% in the same period, compared with the previous increase of 0.3%.

Official data is expected to show that services inflation ticked down to 5.6% in June from 5.7% the month before, according to a Bloomberg survey of economists.

Previewing the UK inflation data, TD Securities (TDS) analysts noted: “Heavy deflation in the energy component should keep headline inflation close to the 2% target in June despite core likely remaining sticky at 3.5% YoY.”

“Focus will continue to be on services, and here we see an unchanged YoY reading as momentum remains strong. Taylor Swift should not have that big of an impact on this print – August is the bigger risk in our view,” the TDS analysts said.

The encouraging UK growth numbers and BoE Chief Economist Huw Pill’s prudent comments last week helped push back against the timing of the BoE’s first rate cut since the COVID pandemic hit the world in 2020.

Data released by the ONS last Thursday showed that the UK economy grew by 0.4% in May, above the expected 0.2% monthly expansion, after stagnating in April.

Meanwhile, BoE Chief Economist Pill dampened expectations of an August interest rate cut on Wednesday. Pill said, “I think it’s still an open question on whether the timing for a rate cut is now,” adding that services inflation and wage growth showed “uncomfortable strength” despite headline inflation falling to the BoE’s 2% target in May.

Money markets currently price in a 50% chance of 25 basis points (bps) cut to the Bank Rate on August src, down from 62% seen early last week.

How will the UK Consumer Price Index report affect GBP/USD?

Against this backdrop, the UK CPI data will be crucial to determining whether the August rate reduction remains on the table for the BoE. An upside surprise to the headline and core inflation data could support the recent dialing down of expectations of a rate cut next month, fuelling a fresh leg higher in the Pound Sterling. In such a case, GBP/USD could unleash the additional upside toward the src.3src00 level.

On the other hand, GBP/USD could retest the src.2800 round figure if the UK CPI readings meet forecasts while the services inflation softens significantly. This could bring back bets for the BoE policy pivot in August.

Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for the major and explains: “GBP/USD’s daily chart portrays overbought conditions, as src4-day Relative Strength Index (RSI) holds near 75, signaling risks of a Pound Sterling correction in the near term.”

Dhwani adds: “The pair needs to find acceptance above the src.3000 psychological level on a daily closing basis to extend the upside toward the July src9, 2023, high of src.3045. On the flip side, the immediate support is placed at the March 8 high of src.2894, below which the src.2800 resistance-turned-support could be tested. The last line of defense for buyers is seen at the 2src-day Simple Moving Average (SMA) at src.2748.” Dhwani adds.

BoE FAQs

The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).

When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.

In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.

Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.

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