EUR/GBP ended the day higher following UK inflation data for April surprising significantly to the topside, relative to both consensus and BoE estimate, Danske Bank’s FX analysts report.
More cuts in August and November
“Headline came in at 3.5% y/y (cons: 3.3%, prior: 2.6%, BoE: 3.4%) and services at 5.4% y/y (cons: 4.8% , prior: 4.7%, BoE: 5.0%). Akin to PMI data for April, this points to a more cautious cutting cycle from the BoE with more stagflationary tendencies with still elevated price pressures, which we see as GBP negative.”
“Additionally, we note that the yearly indexation of a range of services took place in April such as for phone and internet bills. Effects from energy prices, a rise in water bills, a new car road tax and the timing of Easter all lifted the prints yesterday, which makes it trickier for the BoE to gauge underlying price pressures.”
“Markets scaled back on the pricing of cuts, pricing just short of 40bp worth of cuts by year-end. We expect two more cuts in August and November.”
