G7 conclusion
Yesterday’s publication of UK inflation data reached markets before the European and UK open. Whilst headline CPI is arguably less important for Bank policy than other inflation-focussed statistics such as services inflation, the release still demands market attention. Yesterday’s publication showed UK inflation above forecast for April. April is always a challenging month for price forecasts because so many major goods and services are repriced at the start of the new financial year. Unpredictable annual price adjustments to services, utilities and telecommunications in particular often leave April as an outlying inflation publication. Year-on-year CPI inflation to April 2025 recorded at 3.5% versus a 3.3% forecast.
During the publication, GBP was relatively stable. However, as the European session progressed it was a beneficiary of a receding US Dollar as markets questioned Congress’s appetite for Trump’s tax bill. A busy day on the economic calendar, today will see high salience hard and soft data published across the EU, UK and US. Today also marks the conclusion of the G7 finance summit in Canada. As always that summit will conclude with a communique of the key aspects of this three-day meeting. That publication rather helpfully contains a statement on FX.
That statement hasn’t changed in many years. Each time it reaffirms the same simple messages we would expect from the finance and central bank chiefs of the seven most developed economies on the planet. It states that exchange rates should be determined by an open market. That excessive volatility can cause risks to the economy and that competitive exchange rate devaluations should not be tolerated amongst the G7. Cue Bessent. Markets are keen to see if their theory of a structurally weaker US Dollar is still the pursuit of Washington in its so-called Mar-a-Largo accord. Whilst an outside risk, any change to the G7 ministers’ statement in the communique, expected to be published later today, would be near-certain proof that the accord is alive.
Discussion and Analysis by Charles Porter
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