Sharp increases in food and fuel prices have pushed the UK inflation up to 9.4%, slightly exceeding the market forecast of 9.3%. This is the closest the inflation rate has been to double digits since 1982. June’s inflation rate increased by 0.3% from May and is amongst the highest rises in the G7 group. The cost of living has increased by 0.8% from the previous month, recording the highest increase since at least 1988 when modern record-taking began.
UK inflation has been on the rise for 9 consecutive months now and the Bank of England (BOE) is expecting it to peak at 11% towards the end of the year when energy prices rise again in the fall. Core inflation, which excludes food and energy prices, stands at 5.8% for June, which is slightly lower than May’s 5.9%.
Traders are expecting that this development will push the Bank of England to tighten its monetary policy. The governor of the central bank, Andrew Bailey, has already confirmed that a 0.5% interest rate hike is an option. "A 50 basis point increase will be among the choices on the table when we next meet. 50 basis points is not locked in, and anyone who predicts that is doing so based on their own view,” he commented. The BOE is scheduled to have a meeting to discuss its monetary policy on the 4th of August.
GBP/USD has not been able to maintain its bullish momentum this morning. Soaring US stock prices and gloomy inflation rates in the UK have allowed the greenback to recover some of its losses. If the US Dollar Index corrects upwards, it may add pressure on the currency pair.
However, traders will be keeping an eye out for US Existing Home Sales data which is scheduled to be released later today. If the numbers fall short of expectations, it could limit USD’s potential recovery.
Despite coming close to double-digit inflation, some economists remain hopeful, explaining that the rising inflation is mainly concentrated from food and fuel. This means that core inflation, which is actually decreasing, has a chance of coming back down to the targeted 2% in a year or so.
For now, markets will keep an eye on the price of GBP/USD which could drop if the US Dollar Index corrects itself. This will largely depend on the figures released from the Existing Home Sales later today.
Copyright © 2022 – All rights reserved.
NAGA is a trademark of The NAGA Group AG, a German based FinTech company publicly listed on the Frankfurt Stock Exchange | WKN: A161NR | ISIN: DE000A161NR7.
Any trademarks appearing on this website are the property of their respective owners.
The NAGA Group AG is the holding company of various companies, such as NAGA GLOBAL LLC, NAGA MARKETS EUROPE LTD, NAGA Technology GmbH, NAGA Pay GmbH and has a close link with NAGAX Europe OÜ.
RISK WARNING: Derivatives are complex instruments and come with a high risk of losing money rapidly due to leverage. A high percentage of retail investor accounts lose money when trading derivatives with this provider. You should consider whether you understand how derivatives work and whether you can afford to take the high risk of losing your money.
Trading with NAGA Trader by following and/or copying or replicating the trades of other traders involves high levels of risks, even when following and/or copying or replicating the top-performing traders. Such risks include the risk that you may be following/copying the trading decisions of possibly inexperienced/unprofessional traders, or traders whose ultimate purpose or intention, or financial status may differ from yours. Before making an investment decision, you should rely on your own assessment of the person making the trading decisions and the terms of all the legal documentation.
Restricted countries: NAGA Group AG does not provide services for the residents of certain countries, such as Afghanistan, Albania, American Samoa, Australia, Barbados, Belgium, British Virgin Islands, Burkina Faso, Cambodia, Canada (including Quebec), Cayman Islands, Central African Republic, Congo, Democratic People's Republic of Korea, Democratic Republic of the Congo, Gibraltar, Guam, Haiti, Iran, Iraq, Isle of Man, Israel, Jamaica, Jordan, Libyan Arab Jamahiriya, Mali, Monaco, Morocco, Myanmar, Nicaragua, Philippines, Russian Federation, San Marino, Senegal, Serbia, Somalia, South Sudan, Sri Lanka, Syrian Arab Republic, Trinidad and Tobago, Tunisia, Turkey, Uganda, Ukraine, United Kingdom, US Minor Islands, US Virgin Islands, USA, Vanuatu, Yemen, Zimbabwe.