Pound recovers as UK CPI edges lower
|The British pound has stabilized on Wednesday. In the European session, GBP/USD is trading at 1.3551, up 0.28% on the day. The US dollar showed broad strength on Tuesday and GBP/USD declined 1.05% and fell to a three-week low.
UK inflation ticks lower to 3.4%
UK inflation for May edged lower to 3.4% y/y, down from 3.5% in April and matching the market estimate. The driver behind the deceleration was lower airline prices and petrol prices. Services inflation, which has been persistently high, eased to 4.7% from 5.4%. Monthly, CPI gained 0.2%, much lower than the 1.2% gain in April and matching the market estimate.
Core CPI, which excludes food and energy, fell to 3.5% in May, down from 3.8% a month earlier and below the market estimate of 3.6%. Monthly, the core rate rose 0.2%, sharply lower than the 1.4% spike in April and in line with the market estimate. This marked the lowest monthly increase in four months.
The Bank of England will be pleased that core CPI moved lower but the inflation numbers are still too high for its liking. Headline CPI had been below 3% for a year but has jumped well above 3% in the past two months.
BoE policymakers won't have much time to digest today's inflation report as the central bank makes its rate announcement on Thursday. The markets are widely expecting the BoE to maintain the cash rate at 4.25%,
Investors will be keeping a close eye on the meeting, looking for hints of a rate cut later in the year. The UK economy contracted in April and with wages falling and unemployment rising, there is pressure for the BoE to lower rates, but that is risky with inflation well above the BoE's 2% inflation target.
US Retail Sales sink
US retail sales slumped in May, falling 0.9% m/m. This was well below the revised -0.1% reading in April and worse than the market estimate of -0.7%. Annually, retail sales fell to 3.3%, down sharply from a revised 5.0%.
Consumers are wary about the economy and anxiety over Trump's tariffs has weighed on consumer spending. If additional key US data heads lower, this will increase pressure on the Federal Reserve to lower interest rates.
GBP/USD technical
- GBP/US is putting pressure on resistance at 1.3480. Above, there is resistance at 1.3545.
- 1.3364 and 1.3299 are providing support.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.