In Wednesday’s London session, the Pound Sterling (GBP) staged a robust rebound, fueled by a report from the United Kingdom Office for National Statistics (ONS) revealing that the Consumer Price Index (CPI) for March surpassed economists’ forecasts. Despite outperforming expectations, the inflation rate exhibited a softening trend from February, suggesting that the Bank of England‘s (BoE) higher interest rates are helping to alleviate price pressures.
Simultaneously, producer price inflation also exhibited a slowdown, indicating a moderation in the prices of goods and services at factory gates. Typically, businesses reduce their prices when they anticipate subdued demand.
The slightly elevated inflation figures may raise questions about expectations for a rate cut by the BoE in November, although recent employment data hinted at a cooling job market in the UK. The latest labor market report revealed a sharp increase in the Unemployment Rate to 4.2% for the three months ending February, exceeding expectations of 4.0% and the previous release of 3.9%. Moreover, the number of employed individuals declined by 156,000 during the same period, surpassing the 89,000 job losses recorded in the preceding quarter to January.
In the realm of market movers, the Pound Sterling rebounded to 1.2460 against the backdrop of the United Kingdom ONS’s report indicating a higher-than-anticipated inflation rate for March. The annual headline inflation surged to 3.2%, surpassing expectations of 3.1%, albeit slowing from the previous reading of 3.4%. Monthly headline inflation displayed steady growth of 0.6%.
Furthermore, the UK’s annual core CPI data, which excludes volatile food and energy prices, expanded by 4.2%, surpassing the anticipated 4.1% but significantly decelerating from February’s 4.5%. This core inflation metric represents the BoE’s preferred measure for interest rate decision-making. Although marginally higher than anticipated, the core inflation data indicates that price pressures are on track to align with the BoE’s target rate of 2%.
Despite the positive inflation data for March, expectations for a shift towards rate cuts by the BoE, which are currently anticipated in November according to rate future markets, are unlikely to be significantly influenced.
Internationally, market sentiment remains subdued due to escalating tensions in the Middle East and a hawkish interest rate stance from Federal Reserve Chair Jerome Powell. S&P 500 futures are reflecting some losses amid this sentiment. Concerns over further escalation in Iran-Israel tensions intensified as Israel pledged retaliation against Iran’s attack, with the US indicating readiness to impose sanctions on Iran.
Meanwhile, the US Dollar Index (DXY), measuring the USD’s value against six major currencies, is hovering near a fresh five-month high around 106.40. The index is poised to extend its upward trajectory, following Powell’s remarks on Tuesday emphasizing the need to maintain higher interest rates for longer, given robust labor demand and sluggish progress in inflation towards the desired 2% rate.
