The British pound has posted gains in the Tuesday session. In North American trade, GBP/USD is trading at 1.3892, up 0.39% on the day. On the release front, British CPI was unchanged at 3.0%, edging above the forecast of 2.9%. There are no major events out of the US. On Wednesday, the US releases inflation and retail sales data. Traders should be prepared for some movement from the pair during the North American session.
There were no surprises from British inflation numbers on Tuesday. CPI, the primary gauge of consumer spending, was unchanged at 3.0% in January. CPI has hovered around the 3% level since August, well above the BoE target of 2.0%. Wage growth has not kept up with the brisk clip of inflation, putting a further squeeze on the British consumer. This could dampen consumer spending, a key driver of the economy. High inflation is putting pressure on the Bank of England to raise interest rates, and last week the Bank said that it was considering faster and larger rate increases than it had projected back in November. Many analysts have circled May as the date of the next rate increase.
A key factor in last week’s market turbulence was investor concern over more rate hikes due to inflation. Given this concern, it’s likely that the US CPI and Core CPI releases on Wednesday will be a market-mover. The markets will be glued to the inflation indicators, and if inflation numbers are higher than expected, we could see some volatility from the US dollar as well as the stock markets.
