GBP/USD daily chart
It was always going to be tough to get a good read of the UK CPI report today. To be more precise, in gauging the impact of Ofgem lowering the energy price cap by 12% in April. The inflation numbers were always going to be lower but by how much? Both the headline and core annual inflation numbers reflected a drop but not as per forecast. However, the key giveaway for why this is a hotter-than-expected report is in the services inflation numbers.
That is seen at 5.9%, as compared to the estimate of 5.5%. And it is just mildly lower than the 6.0% reading in March.
In any case, sterling has moved higher as a result with GBP/USD up from around 1.2710 earlier to 1.2740 levels currently. I don’t think this is a move to be faded as at the balance, it should rule out a June rate cut. I mean, in the BOE’s words, the persistent parts of inflation are falling but perhaps not as quickly as they’d hope.
From a technical perspective, the run higher also looks to firmly take out the April high of 1.2709. That opens up the path towards offers and some minor resistance near 1.2800 next.
The BOE rate cut odds coming into the report can be found here, with traders pricing in ~53 bps for the year. I would expect that to be reduced with June odds in particular pared back later when the market opens.