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Pound volatility expected ahead of UK inflation data

Published 05/20/2024, 03:31 AM
© Reuters.
- -- On Wednesday, the upcoming Consumer Price Index (CPI) data for April is anticipated to be a significant indicator for the British pound's trajectory. Market expectations, as reflected by the Sonia curve, suggest a 14 basis point easing in June and a 25 basis point cut by August from the Bank of England (BoE).

Economists predict that services inflation may exceed the BoE's projections, which could shift the likelihood of the initial rate reduction to August rather than June. This assessment is not without uncertainty, as the forthcoming data could markedly influence market predictions regarding a June rate cut.

Bank of England Governor Andrew Bailey is scheduled to give a speech tomorrow, which may offer further insights into the central bank's perspective and potential monetary policy adjustments.

Should the inflation figures align with the forecast, the pound is expected to strengthen. A scenario mirroring April's market movements could see the EUR/GBP pair decline below the 0.8550 threshold, reversing the spike experienced when it surpassed 0.8600 and dropped to 0.8530. Nonetheless, a significant fall in the EUR/GBP exchange rate could render the pound undervalued, especially if the BoE opts for more aggressive rate cuts than the European Central Bank by the end of the year.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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