UK inflation soars to 9%

Pound slides after CPI report

The British pound has taken a tumble after April CPI jumped to 9.0% YoY, up sharply from 7.0% in March. GBP/USD has fallen 100 points today and is trading at 1.2390 in North American trade.

UK inflation continues to run at a 40- year high, and the cost of living crisis is undoubtedly keeping Finance Minister Sunak and BoE Governor Bailey awake at night. Core CPI didn’t provide any relief, as it rose to 6.2%, up from 5.7% prior. This indicates that inflationary pressures are broad-based and aren’t about to ease anytime soon. The only positive in the CPI release was that it was a bit lower than the forecast of 9.1%, but I’m sure few in the City of London are taking any solace from that tidbit.

The BoE has essentially raised the white flag on the inflation front, saying that many of the factors at play, such as the Ukraine war and soaring energy costs are beyond the Bank’s control. The BoE has warned that things could get worse, projecting that inflation will top 10% later this year and warning of a likely recession. Bailey & Co. are doing their best to catch up with the inflation curve as they aggressively hike rates while trying not to choke off economic growth.

With the spectre of 10% inflation looming, confidence in the BoE may be ebbing. Like the Fed, the BoE has come under heavy criticism for not reacting to spiralling inflation quickly enough, and the 25-bps incremental hikes may not prove to be sufficient. The Fed has gone full throttle with a 50-bps hike and more to follow, and pressure is mounting on the BoE to follow suit.

The US is also facing spiralling inflation, and Fed Chair Powell has signalled that the Fed will deliver 0.50% hikes in June and July. Former Fed Chair Bernard Bernanke weighed in on Fed policy, saying that it was a mistake for the Fed not to react earlier to rising inflation. Bernanke also warned that the US economy could face stagflation in the next year or two.

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GBP/USD Technical

  • GBP/USD has broken below support at 1.2436. Below, 1.2374 is under pressure
  • There is resistance at 1.2557 and 1.2619

 

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.
Kenny Fisher

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