British Pound Calm Ahead Of Inflation

06/21/2022

1 minute read

2022.06.21 18:06

The pound is having a quiet week, after some sharp swings last week. Monday was a holiday in the U.S., and it was a quiet session for the U.S. dollar. The currency markets are calm today as well, with the exception of the sinking Japanese yen.

British Pound Eyes CPI

Last week was the turn of the central banks to perform on stage, with the Fed, Bank of England and Swiss National Bank all raising rates. All three central banks are keeping a close eye on rising inflation and tightening policy in order to wrestle down inflation. The BoE has been accused of raising a white flag with regard to inflation, and last week’s tepid rate hike of 0.25% won’t silence the critics.

The UK releases the May inflation report on Wednesday, with headline CPI expected to nudge higher to 9.1%, up from 9.0% in April. The BoE estimates that inflation will peak above 11%, some time later this year. With the BoE grimly predicting that inflation will hit double-digits, the cost of living crisis, which is already bad, is poised to get even worse. This has led to inflation expectations continuing to accelerate, and the UK rail strike, the biggest in 30 years, is a reflection of workers taking extreme action in the face of rising inflation. Consumer confidence is down, and a drop in consumer spending would be disastrous for an economy that may be headed for a recession.

In the U.S., Fed Chair Jerome Powell will testify on Capitol Hill on Wednesday and Thursday, and the ratings should be high, following the Fed’s largest rate hike since 1994. Fed members Thomas Barkin and Loretta J. Mester will speak later today, and the markets will be listening, looking for insights regarding upcoming rate hikes.

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