The British consumer price index for March is due out on Wednesday morning, with the pound (GBP) poised to fall if cooling UK inflation boosts bets on a May interest rate cut from the Bank of England (BoE).
At the time of writing, the pound is rising against the euro and the US dollar amid a risk-on mood and hopes for a UK-US trade deal. GBP/EUR has recovered some of last week’s steep losses to hit a five-day high, meanwhile GBP/USD has risen to a fresh six-month high.
What is the UK CPI expected to show?
The latest CPI figures are expected to show that headline inflation cooled slightly in March, from 2.8% to 2.7%. Meanwhile, core inflation is forecast to have held steady at 3.5%.
After last month’s below-forecast figures, there’s a chance inflation could cool more than expected. However, persistently above-inflation wage growth may have driven prices higher.
How could the UK inflation figures this impact the pound?
If the CPI prints as expected, it could further increase the likelihood of a BoE interest rate cut in May – particularly after today’s cooler-than-forecast wage growth figures – thereby pressuring the pound.
A cooler reading could lead to steeper losses for Sterling, while a surprise uptick in UK inflation may see GBP climb.
On Thursday we have the European Central Bank’s (ECB) interest rate decision, where a widely expected rate cut could weigh on the euro.
In the meantime, the aftermath of Donald Trump’s sweeping tariff announcement could continue to infuse the currency market with volatility.
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