GBP/USD daily chart
Today’s UK CPI report was always going to be tough to read – or, more precisely, in gauging the impact of Ofgem’s 12% cut in the energy price cap in April. Inflation was always trending lower, but by how much? Both headline and core annual inflation reflect a decline, but not in line with expectations. But the key to why this report attracted more attention than expected lies in the services inflation rate.
The percentage was 5.9%, compared to the expected 5.5%. It is also slightly lower than March’s 6.0%.
In any case, the result is that the pound has strengthened and GBP/USD has risen from around 1.2710 previously to the current 1.2740 level. I do not think this policy will weaken. On balance, a rate cut in June should be ruled out. So, in the words of the BOE, the persistent part of inflation is falling, but perhaps not as quickly as they would like.
From a technical perspective, this rally will definitely surpass the April high of 1.2709. This next paves the way for an offer and a small resistance around 1.2800.
BOE rate cut odds included in the report can be found here, with traders pricing in up to 53bps for the year. We expect this amount to be lowered, especially with the June odds being lowered later when the market opens.
