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GBPUSD Downside Risk Remains Despite Higher Than Expected Inflation


Harvest Global Markets :

Based on the most recent data published by the UK Office for National Statistics (ONS) on Wednesday, the Consumer Price Index (CPI) in the United Kingdom experienced an 8.7% increase in April, showing a slowdown compared to the significant 10.1% surge recorded in March. Market expectations had anticipated a more moderate 8.2% rise. Meanwhile, the Core CPI, which excludes volatile food and energy items, saw a year-on-year growth of 6.8% last month, surpassing the 6.2% rise observed in March. Looking at the monthly figures, the UK Consumer Price Index rose by 1.2% in March, exceeding both the estimated 0.8% and the previous 0.8% figures.

An official from the UK Finance Minister Jeremy Hunt’s office said that “we must stick resolutely to plan to get inflation down.” Meanwhile, Hunt noted, “Although it is positive that it is now in single digits, food prices are still rising too fast.”  The current inflation figures although softer than the previous figures, the core inflation figures are the highest since March 1992. The initial reaction after the CPI report was released GBPUSD pair increased by 20 points before reversing towards 1.2420. The somewhat sticky inflation in the UK justifies the hawkish stance of the BOE governor Andrew Bailey.

 Furthermore market is still trading in caution due to the risk of US debt default still takes precedence over other fundamentals, through the week congress lawmakers have been meeting to close the deal of the debt limit but no outcome is coming out of the meetings. Throughout the week FED spokesperson have been giving out hawkish statements regarding interest rate hikes. The recent PMI data on the US front showed that the economy is showing resilience against the rate hikes, which in turn provides more room for the FED to further increase their interest rates.

Looking ahead, the retail sales report of UK due on Friday 26th May will further provide clarity on the pair direction, also the market will be closely watching the latest GDP figures & weekly unemployment claims coming from the US today.

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