The British pound is in positive territory on Tuesday. In the European session, GBP/USD is trading at 1.2277, up 0.50%.
UK inflation accelerates
For Bank of England policy makers, the “how not to start the day” manual likely included inflation climbing higher. That was the bad news earlier today, as UK headline CPI rose to 10.4% in February, reversing the deceleration trend in recent months. The reading was up from 10.1% in January and above the consensus estimate of 9.8%. The core rate climbed to 6.2% in February, up from 5.8% prior which was also the estimate. The usual suspects were at play, with the food and energy prices driving the increase in inflation.
The inflation print will complicate matters for the BoE, which has hiked rates to 4.0% in a bid to contain inflation. Higher inflation will require further rate hikes, but the fallout from the banking crisis, which has roiled the financial markets, means that central banks will have to tread carefully with rate moves. The BoE is almost certain to deliver a 25-bp hike at the policy meeting on Thursday.
In the US, the response to the banking crisis has been swift and decisive, which has helped soothe market jitters after last week’s panic. Over the weekend, the Federal Reserve and five other major central banks announced coordinated action to bolster liquidity, and Treasury Secretary Yellen said that the bank system was stabilizing and she would intervene if necessary in order to protect depositors of small banks. The Federal Reserve announces its rate decision later today and after massive shifts in market pricing lately, a 25-bp increase is almost a certainty. What will be of interest to investors is whether the Fed follows the stance of the ECB and avoid any direct signals about future rate moves.
- GBP/USD is testing resistance at 1.2253. The next resistance line is 1.2324
- There is support at 1.2132 and 1.2061
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