Gentium FX | Daily Report - 21st June 2023 - UK Inflation Remains Persistent

GBP: UK inflation data for the month of May surpassed expectations as core CPI unexpectedly increased from 6.8% to 7.1%, while the headline rate remained steady at 8.7%, defying predictions of a decline to 8.4%. The primary driver behind the rising prices is attributed to higher services inflation, which is likely to raise concerns among Bank of England hawks. Although the likelihood of a 50 basis point interest rate hike tomorrow is low, this development is expected to persuade MPC members to vote for further tightening measures by the Bank of England with a 25 basis point hike the most likely outcome. As a result, the Pound has been given some support across the board.

EUR: ?ECB member Rehn has suggested that inflation is only easing gradually and by not as much as previously hoped. This echoes the comments made during the European Central Bank monetary policy announcement last week. Yesterday, fellow member Villeroy made dovish comments, while Muller and Vujcic took a more hawkish stance. Today, hawkish ECB members Schnabel, Nagel, and Kazimir will be speaking, but the impact is likely to be limited. The market awaits Eurozone manufacturing and services PMI figures due to be released on Friday morning.

USD: Federal Reserve Charman Powell will be testifying in front of Congress today and tomorrow and will be questions on monetary policy given the current inflation level. Powell is likely to justify why the central bank kept interest rates unchanged this month and what is the likely outcome for next month’s policy meeting. Last week, Powell suggested that rate cuts were not going to occur any time soon. If he pushes this rhetoric again successfully, then this may offer the Dollar some support.?

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