Comment: Sterling hovers near trend highs ahead of key UK CPI Wednesday

Noram Lithium

21/05/2024 15:13

GBP/USD hovered near flat, down from its NorAm open 1.2717 and capped by Monday
and Tuesday highs by 1.2725, as traders await Wednesday's UK CPI data, which
could pull forward rate cut expectations and send cable toward April lows by
1.2299 if it undershoots forecasts.
    GBP/USD has been rising steadily since Fed Chair Jerome Powell took rate
hikes off the table and signaled the next move is likely to be a cut. Adding to
the pound's drift higher has been U.S. data that indicates the U.S. economy and
inflation may be stalling, opening the way for faster and deeper Fed cuts.
    The pound's rise has been somewhat confounding as the BoE took a dovish tack
at its recent meeting, where Deputy Governor Dave Ramsden joined MPC member
Swati Dhingra voting for a cut. Though BoE governor Andrew Bailey voted to hold
rates steady he did note that a cut in June is possible.
    Currently, STIR futures as expressed on LSEG's IRPR page suggest the BoE is
near even money for a 25bp cut in June. Should, UK CPI data indicate UK
inflation is continuing to diminish, a possible June and August cut by the BoE
would likely cap further gains.
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GBP Chart:     https://tmsnrt.rs/3V5eJMR
UK CPI Chart:     https://tmsnrt.rs/3URW5GR
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 (Paul Spirgel is a Reuters market analyst. The views expressed are his own)
 ((paul.spirgel@thomsonreuters.com))