Will the UK data series shake up the British pound?

It promises to be an exciting week on the financial markets, especially on the British market, where after the decision Fed i EBC time for the decision of the Bank of England. Below is a collection of subjectively selected events of this week.

Next key data on US inflation

US Inflation for April - 10/05 - After the Federal Reserve raised interest rates again by 25 basis points last week, the current April CPI data is likely to be a key benchmark as to whether the Federal Reserve will meet at its next meeting will press the pause button and keep interest rates unchanged after several consecutive meetings of hikes. While the headline CPI index fell to 5% in March from 6% in February, the picture of core prices did not encourage a continuation of rapid decline in inflation. In the case of the core measure, prices increased to 5,6% on an annualized basis from 5,5%, thanks to which core inflation exceeded headline inflation for the first time since January 2021.

It is this stickiness of underlying prices, as well as the resilience of the US labor market, that is making the Fed's task more difficult, but after the Fed has hiked rates at every meeting for the past 12 months, regardless of how this week's inflation data fares, perhaps the time has come time for a pause, given that the comparable US PPI is falling quite sharply and is already at 3,4%, after a year ago it was as high as 9,6%. April's CPI inflation is expected to remain stable at 5%, while core prices are expected to fall from 5,6% to 5,4%.

Decision of the Bank of England

Decision Bank of England on interest rates - 11/05 - it has become quite clear over the past few months that the Bank of England's management of monetary policy over the past 12 months has not been entirely effective. From the deaf speeches of the governor of the Bank of England Andrew Bailey on wages and his chief economist Huw Pill, who recently said that British consumers will have to get used to a lower standard of living due to persistently high levels of inflation, or risk rates staying higher for longer, it is likely that in this We will see another 25bps rate hike this week, with the headline CPI still above 10% and core prices at 6,2%.

While all of this may be true, if the Bank of England had not overslept when it became clear that inflation was starting to accelerate in late 2021 and had been more aggressive in raising rates, perhaps inflation would not have been as high or as entrenched as it is now. Of course, we'll never know what the counterfactual scenario would be, but if rates matched the pace of the US Federal Reserve, chances are we'd be much closer to the prospect of a rate cut than we are now. In the current environment, it's hard to imagine rates falling much sooner than mid-next year, which is bad news for those looking to exit fixed-rate mortgages. We will also get the Bank's updated inflation forecasts, as well as a view on the outlook for the UK economy. At this week's meeting, another 25bp rate hike and another split decision are expected. So the distribution of votes can be crucial.

UK GDP

UK GDP Q11 - 05/0,1 - The UK economy managed to generate XNUMX% growth in QXNUMX, beating expectations that the economy is in the midst of a technical recession. In the first three months of this year, the economy fared much better than even the most optimistic forecasts. MFW extensionThe OECD and the Bank of England were overly pessimistic in their assessments of the UK economy last year, both on inflation and growth. The unexpected weakness in commodity prices, specifically oil and gas prices, and the milder weather certainly helped, while consumer spending proved much more resilient. That's not to say the UK economy isn't without its challenges, and its current governors, as well as political opponents, seem bent on tying it up with a ball and chain around its ankle with higher taxes and incoherent economic policies.

Despite still exorbitantly high inflation and a central bank that seems to be affected by consistent comments about how the economy is working, we should see an improvement over the economic performance seen late last year. With retail and services sectors showing solid signs of improvement, we should see a moderate expansion in Q3, with monthly GDP data for the first 0,4 months of this year showing a 0% increase in January, 0,1% in February and an expected increase of 0,2%. XNUMX% in March, despite the turmoil in the banking sector that took place this month. Expectations say XNUMX% in QXNUMX.

So it seems that this week may be important from the point of view of events on pairs with the British pound and the US dollar. According to data from the currency options market, the implied volatility for GBP/USD is around 150 pips for this week. For EUR/USD it is around 120 pips. The most volatile may again be USD/JPY with a potential fluctuation range of around 200 pips.