Surprise Hike in CPI Sends Sterling Higher

Barbara Zigah

The British pound gained ground against both of its main rivals in London trade on Wednesday after inflation data gave Forex traders the jitters. The Office of National Statistics in the UK reported that May's CPI surged to 2.1% in May, against an expected 1.8%, moving well above the previous reading of 1.5%. The Bank of England's inflation target of 2% was overshot, and that has raised some concerns among market players that the Monetary Policy Committee may need to consider a policy shift if the inflation rates continue to trend higher. Analysts expect the CPI to continue to rise now that the country is beginning to re-open its economy in earnest in the wake of the coronavirus pandemic. The BoE will want to be certain that price pressures can be eased by a stronger pound.

In London trading as of 11:15 am, the GBP/USD was trading at $1.4116, a gain of 0.2713%, moving away from the session peak of $1.41238 while the low was recorded at $1.40753. The EUR/GBP was lower at 0.8586 pence, down 0.3251%; the pair has ranged from a trough of 0.85835 pence to a high of 0.86202 pence in today's session.

BoE Policy Meeting in Focus

The Bank of England's next policy meeting is next week, and while the central bank's policymakers have taken the possibility of higher inflation in stride given the government's fiscal policy initiatives, their reaction will be scrutinized. The BoE had already identified a potential hike in CPI to as much as 2.5% by 2021's end, but commented that expectations were it would fall back close to the 2% target. This latest surge will no doubt play a key role in the decision-making process as far as the timing of a tightening policy is concerned. Yesterday, the ONS reported that the claimant count rate dropped to 6.2% (from 6.4%), while the claimant count change was recorded at -92.6K in May, against the previous month's -55.8K.

Barbara Zigah

After working on Wall Street, Barb began her second career as a freelance writer at Daily Forex, where the CEO recognized fresh, untapped potential and was willing to give her a try. She’s never looked back. Since then, she’s worked steadily as a freelance writer and editor in the financial services and Forex-related industry.

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