Prepared for an additional spherical of U.Okay. CPI information?

Right here’s what the upcoming launch may imply for the BOE’s coverage path and GBP value motion.

Occasion in Focus:

U.Okay. Client Worth Index (CPI) and inflation information for June 2023

When Will it Be Launched:

July 19, 2023 (Wednesday), 6:00 am GMT

Use our Foreign exchange Market Hours instrument to transform GMT to your native time zone.

Expectations:

• Headline CPI y/y: +8.2% y/y forecast vs. +8.7% y/y earlier
• Core CPI y/y: +7.1% y/y forecast vs. +7.1% y/y earlier
• PPI enter m/m: +0.2% m/m forecast vs. -1.5% m/m earlier
• PPI output m/m: -0.3% m/m forecast vs. -0.5% m/m earlier

Related Information Since Final Occasion/Information Launch:

• Common earnings index accelerated to six.9% for three-month interval ending in Could vs. 6.8% consensus, index for April interval upgraded from 6.5% to six.7%
• S&P International manufacturing PMI for June mirrored one other month of declines for enter prices, chalking up the steepest fall since February 2016, as “weaker demand for inputs, lowered gasoline prices, commodity value decreases and improved provide chains” got here in play
• S&P International companies PMI for June confirmed that enter price inflation eased to lowest stage since Could 2021, however output prices elevated as a result of increased wages
• In Could, producer enter costs slumped by 1.5% month-over-month whereas output costs slipped 0.2% vs. projected 0.1% dip

Earlier Releases and Danger Setting Affect on GBP

June 21, 2023

Occasion outcomes / Worth Motion:

The Could inflation report got here in stronger than anticipated on most fronts, because the headline CPI held regular at 8.7% year-over-year as an alternative of dipping to the projected 8.4% studying.

Core inflation even picked up from 6.8% year-over-year to 7.1% as an alternative of staying unchanged whereas the retail value index and housing value index additionally beat estimates.

The one draw back to the report was that producer enter and output costs fell approach beneath expectations and pointed to subdued inflationary pressures down the road.

Surprisingly, the upbeat CPI figures nonetheless spurred a pointy decline for pound pairs, as merchants nervous that these would drive the BOE to hike charges to recession-inducing ranges. Nonetheless, the BOE doled out one more shock by rising borrowing prices by 0.50% and allowed GBP to get better in opposition to a few of its friends.

Danger setting and intermarket behaviors:

Market watchers had already been bracing for warm inflation information from most main economies, which could then push central banks to tighten coverage and presumably put general development in danger.

Greater-yielding currencies had been already on shaky footing early within the week, following downgrades to Chinese language information over the weekend. Issues managed to show round for the higher midweek when Fed head Powell sounded sketchy concerning the timing of future U.S. fee hikes, triggering a rally for U.S. equities and crude oil.

Then once more, it wasn’t lengthy earlier than danger aversion popped its ugly head again within the markets when June flash PMI readings had been rolled out on Friday.

Could 24, 2023

Occasion outcomes / Worth Motion:

The April U.Okay. headline CPI beat market estimates, even because the studying fell from 10.1% to eight.7% year-over-year. Analysts had been pricing in a steeper decline to eight.2% however inflationary pressures turned out to be extra sticky than that.

The core CPI additionally got here in higher than anticipated, because the studying rose from 6.2% year-over-year to six.8% as an alternative of holding regular. Underlying measures of inflation got here in blended, because the retail value index additionally beat estimates whereas producer costs pointed to weaker enter prices.

General, the pound nonetheless rallied in opposition to its foreign exchange friends through the CPI launch since these pointed to stronger probabilities of extra BOE rate of interest hikes within the coming months.

Stronger than anticipated retail gross sales information printed on Friday even allowed GBP to increase its features, as this reassured merchants that stagflation dangers may be prevented.

Danger setting and intermarket behaviors:

There was a variety of consolidation in play throughout this explicit buying and selling week, as market watchers had been taking part in it protected whereas U.S. debt ceiling negotiations had been ongoing.

At the moment, talks broke down in U.S. President Biden’s absence over the weekend, main Treasury Secretary Yellen to reiterate that the June 1 deadline is fast-approaching. This stored a lid on danger rallies whereas propping up safe-havens just like the greenback and yen.

Not even the pickup in U.S. equities on Thursday was sufficient to whet broad danger urge for food, as Fitch’s choice to place the U.S. on “detrimental watch” left buyers on edge in the direction of the top of the week.

Worth motion chances:

Danger sentiment chances:

This busy buying and selling week kicked off with a handful of information factors from China, with essentially the most notable learn, GDP, coming in beneath expectations. This appears to have introduced on slightly little bit of a risk-off lean into the markets via a largely quiet buying and selling session.

This muted bias will seemingly maintain till we get U.S. retail gross sales on Tuesday, which may affect broad market sentiment. Expectations are for the U.S. retail gross sales information to come back in above earlier reads, however regardless of the case could also be, search for it to seemingly drive broad danger sentiment into Wednesday’s commerce.

British pound situations:

Potential Base State of affairs:

It may very well be high-time for a dip in U.Okay. value pressures, as most main indicators just like the PMIs and PPIs are hinting at declining prices. In any case, the BOE has been working arduous at maintaining inflation contained via its consecutive rate of interest hikes.

If market dynamics between inflation information and danger urge for food stay the identical as within the earlier week, the pound may really be in for a pop increased if CPI figures disappoint.

Regardless that this may spell an eventual finish to the BOE’s tightening cycle, it may get pound bulls longing for significantly better development prospects for the U.Okay. financial system.

On this case, look out for potential lengthy GBP performs in opposition to commodity currencies, particularly if risk-off flows are available in play after U.S. retail gross sales information. The pound may additionally chalk up features in opposition to safe-havens just like the greenback or yen, particularly for the reason that Fed and BOJ aren’t precisely being hawkish today.

Potential Different State of affairs:

One more robust U.Okay. inflation report would make it the FOURTH consecutive month-to-month upside shock, which could as soon as once more revive recession fears for the U.Okay. financial system as a result of presumably increased borrowing prices.

Remember the fact that the typical earnings index for Should still mirrored cussed wage development, placing upside strain on enterprise output prices and general shopper inflation.

With that, the BOE may need no alternative however to maintain tightening financial coverage, toeing the road between sustaining value stability and risking a downturn in financial exercise.

On this situation, be careful for a GBP selloff just like that of the Could CPI launch, presumably resulting in declines in opposition to the Swiss franc and the euro whose central banks appear to be balancing issues effectively currently.