Sterling is falling this morning following the release of the UK’s July inflation report, which showed figures below expectations across the board. Headline CPI re-accelerated less than expected to 2.2%, but the biggest news was the sharper fall in services inflation from 5.7% to 5.2% (consensus was 5.5%, BoE forecast was 5.6%). Core inflation also slowed significantly from 3.5% to 3.3%, notes Francesco Pesole, FX strategist at ING.
USD weakness may still offer support
“Whether this changes the outlook for the BoE is an open question. Remember that the BoE overlooked some volatile components like this when it cut rates earlier this month, and a measure of core services inflation (excluding those components) was actually unchanged in July. So there’s a chance the MPC won’t put much stock in this downside surprise.”
“But until policymakers actually comment on this and perhaps temper any enthusiasm for further easing, markets may be inclined to price in further cuts in the Sonia curve, also given the external pressure from the moderate recalibration in Fed expectations.”
“Overall, this morning’s inflation figures still support our bullish call for EUR/GBP, and we continue to view the pair as a preferable channel to play BoE-related GBP weakness rather than GBP/USD, where some USD weakness may still offer support. A return above 0.860 in EUR/GBP looks warranted.”
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
