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May 18 - 11:55 AM

GBP/USD - COMMENT-Sterling Soft After UK Inflation Rise Exposes BoE Approach

By Paul Spirgel  —  May 18 - 10:15 AM

Rising UK inflation and the BoE's perfunctory attention to slowing price growth mean GBP/USD bears are likely to retest recent 2022 lows.

UK headline annual CPI came in at 9% in April, just below forecast but well above March's 7% and the BoE's 2% target.

Sterling came under renewed pressure, trading down 0.6% at 1.2416 after hitting a low of 1.2373, and off early European highs by 1.2492 ahead of the data.

The inflation rise challenges the BoE, which has focused on supporting economic growth as well as slowing prices, but this middle-way approach risks leaving neither problem solved -- a potential disaster for sterling bulls.

The Fed's singular focus on taming inflation by slowing demand while other banks, including the ECB ECBWATCH, increasingly talk tough on price growth, leaves sterling vulnerable.

Rate futures project the BoE BOEWATCHwill hike a further 125bps by year-end 2022 and Fed FEDWATCHby 200bps.

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Source:
Refinitiv IFR Research/Market Commentary

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