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UK inflation dominates the week ahead

UK inflation rate to determine whether or not the BoE deliver a second consecutive 50bp interest rate increase..



Sterling has outperformed through 2023 due to unexpected economic resilience and a much stickier than anticipated inflation rate. Last time out on the latter, both the core and general inflation rate rose, which prompted a more assertive action from the BoE raising rates by 50bp. Markets are expecting the same this time round (good news for £, bad news in the main for consumers), but a lower than forecast number could change things. 

Regardless of the outcome, the event is a risk for anyone with GBP to either buy or sell. Current rates are extremely favourable if you are selling the Pound across the board and so if you haven't exchanged or at least hedged some of what is required, doing it before Wednesday would be a wise decision in our opinion. For us, it's a clear 'you have more to lose than to gain' scenario.

We saw last week over in the US just how an undershoot in inflation can create huge volatility and a downgrade to a currency. Something that will eventually happen to GBP, but we suspect this is many months away yet. However, the question is how much further can the Pound realistically go and when will traders turn negative?

Once again, the Euro-Zone has nothing really of note for the 3rd consecutive week and so will be moved by the UK's inflation figures mainly. A slight gain back on GBP was realised last week after the UK came through tricky data breaking-even overall, but a huge 2% was made on the USD after the US inflation number surprise. 

Last week saw a further than expected fall in US inflation which saw Dollars widely sold. A 15-month low was realised against the majors as the US look to now have full control over its high inflation. There is no doubt that the USD will continue to suffer near-term, but the long-term picture looks much better after what looks like a perfect landing scenario from the Fed.