- The pound posted gains this morning after UK inflation held steady for the second straight month, bang on the Bank of England’s 2% target. The print was above the 1.9% that analysts were predicting, suggesting that persistent inflation remains – persistent. Services inflation, which members of the MPC have been watching of late, for signs of domestic price pressures, also held steady at 5.7%, which is higher than the central bank predicted in its latest forecasts. Officials on the MPC have recently expressed concerns about sticky inflation, particularly in the labor market and services sector, so this morning’s data will be closely scrutinised and taken into consideration when the committee next meets on the first of August. The above consensus print has not completely taken a cut next month off the table, but it makes it a harder decision for rate setters on the MPC. Just yesterday, the odds of a 25bp cut next month sat around 40% – this morning those odds have been reduced to just 25%.
- GBPUSD rose to the day’s high, reversing its recent decline to once again test the high 1.29’s. Cable has so far failed to breach last week’s one year high at 1.2995 with resistance seen at the 1.30 psychological level ahead of the July 2023 high of 1.3142.
- Yesterday’s US Retail Sales release came in stronger than expected, with much of the increase attributed to seasonal factors, suggesting that the increase is not a real signal of strength. Equity markets and the greenback rallied with the attention now shifting to today’s Capacity Utilisation numbers and release of the Fed’s Beige Book.
- The single currency continues to consolidate around 1.09, ahead of the release of final CPI data for June. Markets are looking for a small dip in June to 2.5% from the 2.6% recorded in May suggesting that inflation remains on a path towards the ECB’s target. The release comes a day before the ECB policy meeting, with markets continuing to expect officials to keep policy unchanged, with a September cut more likely.
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