Additionally, price pressures are receding in an increasing number of categories as the imported cost shocks fade.” ECB Stance Watched Closely The data provided further relief surrounding the inflation outlook.īerenberg commented “Base effects from last year’s run-up in prices are helping to successively push down inflation over the course of 2023. The core rate also declined to 5.3% from 5.6% and below expectations of 5.3%. The latest Euro-Zone data recorded a decline in headline inflation rate declined to a 14-month low of 6.1% for May from 7.0% for April and below consensus forecasts of 6.3%. A failure to do so carries too many economic, fiscal, and balance of payment negatives." Euro-Zone Inflation Declines
Markets also consider that the net risks to the interest rate profile are still considering that rates could move even higher.Īccording to Kallum Pickering at Berenberg "The risks are skewed to the upside just because the BoE is still quite hawkish and for the past four months in a row near term inflation data have come in above the Bank's own forecast which has been the main justification for raising interest rates."Īlthough expectations of high inflation can underpin the Pound in the short term due to expectations of higher yields, there are important medium-term risks associated with high inflation, especially as competitiveness will deteriorate.īMO global currency strategist Stephen Gallo commented "If UK inflation remains stubbornly high on a relative basis, I see more downside than upside sterling potential - on the view that currencies will be rewarded when their respective central banks have more success in bringing inflation down. Sterling markets have still been responding to the shock inflation data released in May.Įconomists at all investment banks surveyed by media groups now expect that interest rates will be lifted again to 4.75% at the June policy meeting.Ī majority also expect a further increase to 5.00% in August and rates are expected to peak above 5.00%. Investment banks see scope for further GBP/EUR gains while Bank of England expectations stay elevated, but most expect rate expectations are too high. The Pound to Euro (GBP/EUR) exchange rate posted 5-month highs just above 1.1670 before a slight correction to 1.1650. Pound Sterling was unable to make headway immediately after the inflation data released in May, but the currency has gained some traction over the latest week.
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