UK Inflation has continued to ease, having peaked at 3.1% at the back end of last year. As such, this reduces the necessity for the Bank of England to raise interest rates with inflation seemingly returning towards the central banks 2% target, which has been reflected in market pricing. OIS markets (Overnight Index Swaps) are now pricing in a 33% chance of an August rate hike, down from 60%, while a November rate hike is seen at 72%. In the wake of the inflation report, GBP fell to fresh 2018 lows against the US Dollar with the pair now firmly below the $1.3400 figure and looking to make a test for the £1.3300 handle.
Against the Euro, Sterling is surprisingly subbed against the Euro on the back of this news, market focus for GBP/EUR is firmly on Brexit and whether or not PM May's latest proposals will be enough to move Brexit onto the next stage.
Brussels has rejected Theresa May’s new customs proposal less than 24 hours after the prime minister set it out in a bid to placate Brexiteers in her cabinet. European Commission officials told The Independent Ms May’s plan would be unacceptable and would go back on previous commitments made by British negotiators. A day earlier the prime minister had said the “backstop” plan to avoid a hard border in Northern Ireland – which keeps Britain in alignment with the single market and customs union if no other agreement is reached – would be time limited. Sterling exchange rates will be affected by Brexit updates and comments from key UK/EU MP's.