The crunch
Was yesterday the crunch point for GBP that we will be referring back to for several months? Quite possibly, is the answer. Readers of the daily briefing and our clients will likely have shared conversations with our front desk of a forthcoming crunch point in Sterling markets. We have been suggesting that the Bank of England will be unwilling or even unable to deliver the kind of rate hikes the markets have been pricing for. When that realisation forces a correction in the Sterling fixed income market, GBP will necessarily pay the price. Whilst less emphatic a crunch as might have been delivered with a more impressive fall in inflation, yesterday’s data and trading session may still represent this inflection point.
As we wrote to you yesterday, immediately after the data release, UK inflation came in at 7.9%. Core inflation was observed at 6.9%, versus 7.1% consensus forecast. The month-on-month figure was 0.4%, representing the smallest monthly price level increase since early 2022. Headline inflation is down nearly a full percentage point since May’s reading. As we discussed on Tuesday, the services component of inflation was to be watched closely by the Bank of England and the market. Falling by 0.2%, contrary to BoE forecasts for no change, will be received as an encouraging sign for the Bank and likely leveraged to excuse the need for any oversized hikes at their next meeting on 3rd August.
Interest rate expectations have fallen by more than 0.5% since last week. The market now prices less than four 25-basis point hikes until the peak is reached. One data point is not sufficient to call time on inflation and as we highlighted yesterday, the fact 7.9% was welcomed as a figure is telling most of all of the scale of the inflation problem. So far, let’s say instead, the data has been sufficient to provide a significant correction and likely inflection point to what was a heavily overbought Pound Sterling heading into this week.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Related Insights
Daily Brief – UK Employment
Humphrey Percy
Wed 16 Apr 2025
UK Employment At 75.1%, employment for people aged 16-64 looks sort of OK depending on what that really means, but it does not alter the fact that there are currently 1.55 million people who are unemployed, or 4.4% of the potential workforce. Another much more significant number, is that there are currently 9.27 million people […]
Daily Brief – British Pound
Humphrey Percy
Wed 23 Apr 2025
British Pound A 7 month high versus USD, and GBP is at present benefitting from the self inflicted wounds that the USA is continuing to suffer, the latest of which is the speculation over whether POTUS will defenestrate the Chair of the Federal Reserve. At the moment, and we choose our words carefully given the […]
Daily Brief – Rotation out of the US
Humphrey Percy
Mon 14 Apr 2025
Rotation out of the US Quite what that rotation may mean and by how much is exercising the markets and also doubtless the Chair of the Federal Reserve. For the yield on 10 year US Treasury Bonds to move from 3.99% to 4.50% in a week is extraordinary. At the same time, the US Dollar […]
