- The Pound Sterling exhibits a poor performance against all major currencies amid uncertainty ahead of the United Kingdom (UK) Consumer Price Index (CPI) data for May and the Bank of England’s (BoE) interest rate policy, which are scheduled for Wednesday and Thursday, respectively.
- Economists expect the UK Office for National Statistics (ONS) to report a sharp decline in the core CPI, which strips off the more volatile items, to 3.5% from 3.9% in April. The headline inflation is expected to return to the central bank’s target of 2.0% from the prior reading of 2.3%. Investors will keenly focus on service inflation, which has been a major barrier to the BoE’s move towards policy normalization.
- The expected decline in UK inflation will increase investors’ confidence that price pressures will stabilize near the desired rate. This will boost expectations of early rate cuts by the Bank of England (BoE). For June’s policy meeting, the BoE is expected to leave interest rates unchanged at 5.25%. Investors will pay close attention to the vote split and fresh cues on the interest rate outlook.
- In the last policy meeting, BoE Deputy Governor Dave Ramsden joined policymaker Swati Dhingra and voted for lowering interest rates by 25 basis points (bps) to 5.0%. Currently, investors remain split between August or September meetings from when the BoE could start reducing interest rates.
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