The pound has weakened against the euro and the dollar following the latest inflation figure for the UK.
Inflation rose to 9.1% in May, up slightly from April’s figure of 9% and a fresh 40-year high. The Bank of England has warned that inflation could hit 11% later this year.
However, there may be signs that core inflation – which excludes external influences such as global fuel and commodity prices – is peaking.
In the eurozone, European Central Bank Chief Economist, Philip Lane, revealed that the Bank is considering a larger hike of 75 basis points in September. There will be more speeches from ECB officials today.
The main focus for today will be Federal Reserve Chair Jerome Powell’s testimony starting at 3pm UK time. He will speak today and tomorrow in front of the US Senate, and markets will be listening for any hint of another interest rate hike of 75 basis points in July.
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GBP: UK inflation rises again in May
The pound is weaker against the euro and the dollar following the latest inflation data for the UK.
Inflation rose to 9.1% in May, up slightly from April’s figure of 9% and a fresh 40-year high. While this figure is in line with expectations, some major elements of the report were softer than anticipated, potentially proving supportive of sterling.
There may also be signs that core inflation, the statistic that excludes external influences such as global fuel and commodity prices, is peaking. Core CPI came in at 5.9%, below market predictions of 6% and down from April’s figure of 6.2%.
Today’s sluggish inflation figures support the Bank of England’s plan to continue to raise interest rates by 25 basis points.
GBP/USD chart over past year
EUR: Consumer confidence data expected this afternoon
The euro strengthened slightly yesterday after hawkish comments from the European Central Bank’s Chief Economist, Philip Lane, but has weakened against the dollar this morning.
Lane revealed that as well as an interest rate hike of 25 basis points in July, the Bank is considering a larger hike of 75 basis points in September. ECB President, Christine Lagarde, confirmed yesterday that a rate hike is still expected in July and also mentioned another scheduled for September.
There will be more speeches from ECB officials today and consumer confidence figures for the eurozone will be released this afternoon. Consumer confidence is expected to show a slight improvement in June.
USD: Powell to testify in front of the Senate
The dollar has strengthened against the pound and the euro this morning as markets await US Federal Reserve Chair Jerome Powell’s testimony.
Today and tomorrow, Powell, will appear in front of the US Senate, and the markets will be listening for any hint of another interest rate hike of 75 basis points in July.
In the data world, existing home sales data for May was released yesterday, showing a 3.4% decline year-on-year in May. This was the lowest since June of 2020 and in line with estimates. Sales went down for a fourth consecutive month due to rising mortgage rates and high inflation.
Tomorrow, we will see data for jobless claims and PMI.