Wednesday’s UK inflation figures did not come as any major surprise. CPI inflation was in line with the median of analyst estimates. The subcomponents did not surprise either. Nevertheless, the currency market took the release as an opportunity to trade the Pound Sterling (GBP) stronger, Commerzbank’s Head of FX and Commodity Research Ulrich Leuchtmann notes.
Visible price movements in GBP are expected
“The initial market reaction shows very clearly that the Pound Sterling (GBP) is currently benefiting particularly from the fact that the Bank of England (BoE) appears to be lagging behind. While the ECB has already cut its key rate twice and the Fed started with a big move, the market expects the BoE to make rather more leisurely interest rate cuts. That is what makes the pound so attractive.”
“Of course, this would quickly come to an end if inflation in the United Kingdom were to fall very rapidly (as is expected for the euro area and the US). Therefore, UK inflation figures are always a cause for nervousness for those who hold long GBP positions.”
“But the flip side of this previous nervousness is that if the figures do not give cause to question the BoE’s positive outlook on GBP, relief will prevail. Relief does not mean massive GBP strength, but it does mean visible price movements.”
