The British pound experienced volatility, initially surging to its highest level since February 2022 before stabilizing around $1.34. This movement followed the release of UK inflation data that exceeded expectations, leading to a recalibration of market expectations regarding future monetary policy easing by the Bank of England.
- The British pound briefly reached $1.3469, the highest since February 2022.
- UK annual inflation rose to 3.5% in April, exceeding market forecasts and the Bank of England’s projections.
- Rising energy prices and increased Vehicle Excise Duty contributed to the higher inflation.
- Services inflation increased to 5.4%, indicating persistent underlying price pressures.
- Market expectations for further rate cuts have diminished, pricing in only one additional 25 basis point cut by year-end.
- The probability of an August rate cut decreased from 60% to 40%.
- Earlier this month, the Bank of England cut rates by 25 basis points.
- BoE Chief Economist Huw Pill expressed concern that rates might be reduced too rapidly.
The stabilization of the British pound suggests that traders are reassessing the outlook for the UK economy and monetary policy. Higher-than-expected inflation figures have tempered expectations for aggressive easing by the central bank, lending some support to the currency. However, uncertainty remains regarding the future path of interest rates and the underlying strength of the UK economy, which could lead to further fluctuations in the pound’s value.