Pound pushes higher as election campaigning gets under way
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Daily Currency Update
The pound has retained last week’s inflation-driven gains as we return from the long weekend. Last Wednesday saw UK inflation fall, but not as far as expected, resulting in markets pushing back the anticipated date of the first interest rate cut from the Bank of England. The Consumer Price Index fell to 2.3% from 3.2%, which was higher than the 2.1% forecast. As a result, markets now expect the BoE to start easing policy in either August or September.The fall in inflation was likely one of the reasons why Prime Minister Rishi Sunak unexpectedly called a July 4th General Election, as he could evidence that price pressures were finally (hopefully) under control. The decision to remove the uncertainty of when the UK would go to the ballot box is also likely to benefit the pound. If you believe the polls, a large Labour victory is on the cards, and the prospect of some stability after years of changing Prime Ministers is being welcomed by many in the business community.
On the data front, it's a quiet week for the UK so any political news may influence the pound's value and overseas data. GBP/EUR got close to a 21-month high yesterday, touching 1.1770 before falling back a little to sit at 1.1740 currently. GBP/USD is up to 1.2770.
Key Movers
It looks almost certain that next week we will see the European Central Bank start cutting interest rates from their 23-year high of 4.5%. The bank’s chief economist, Philip Lane, told the Financial Times in an interview published yesterday, “Barring major surprises, at this point in time there is enough in what we see to remove the top level of restriction.” This indicates that a 0.25% cut is now all but guaranteed at its June 6th meeting.Attention will now turn to the accompanying statement and commentary from bank chief Christine Lagarde regarding future decisions in the second half of the year. The one piece of noteworthy data today comes from the US, with the Conference Board’s monthly Consumer Confidence survey due at 3 pm. Despite the expectation that the ECB will start cutting interest rates before the Fed, EUR/USD has remained elevated and currently sits at around 1.0875.
Expected Ranges
- GBP/USD: 1.2690 - 1.2820 ▲
- GBP/EUR: 1.1690 - 1.770 ▲
- GBP/AUD: 1.9100 - 1.9245 ▲
- EUR/USD: 1.0800 - 1.0920 ▲