- The Pound Sterling drops to 1.2730 as the market sentiment remains downbeat amid fears that the Federal Reserve would be reluctant to cut interest rates in the June policy meeting due to a string of stubborn inflation indicators.
- The US Dollar and bond yields soared after the United States Producer Price Index (PPI) data for February turned out more stubborn than expected. Producers tend to raise the prices of goods and services at their factory gates when they experience supply chain disruptions or anticipate higher consumer spending. In February, higher gasoline and food prices boosted producer prices. The US Dollar Index (DXY), which measures the US Dollar’s value against six major currencies, rose to 103.40 after the data release.
- This week, the Pound Sterling remains on the back foot. The 0.2% UK economic growth in January, which was expected by markets, fails to offset the impact of weak Employment data for the three months ending January, also released earlier this week. The UK economy has returned to growth after contracting in the second half of 2023. However, the economy needs to report an expansion as a whole in the first quarter to prove that the technical recession was shallow.
- Going forward, the major trigger for the Pound Sterling will be the UK’s inflation data for February, which will be published on Wednesday, a day before the Bank of England interest-rate decision. The impact of slowing wage growth, which has been feeding service inflation, could be visible in the Consumer Price Index (CPI) data. Stubborn service inflation has been a key driver of high inflationary pressures.
- The inflation data will influence market expectations for BoE rate cuts, which are currently pointing to the August policy meeting. According to a Reuters poll, the central bank will start cutting borrowing costs in the third quarter, although 40% of economists saw an earlier trim.
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