• GBP/USD traders await UK inflation data in CPI.
• The markets are pricing in a 25bp hike from the BoE at May 11 meeting. 

GBP/USD was last trading at 1.2425, flat on the day, and had traveled from a low of 1.2366 to a high of 1.2449 overnight as the markets digest UK data and look to the next set of ammunition in today´s inflation report.

On Tuesday, there was an unexpected rise in the Unemployment Rate in the three months to February. This had been expected to remain steady at 3.7% and instead rose a tick to 3.8%. However, average hourly earnings came in at 5.9% YoY vs. the 5.1% expected and a revised 5.9% (was 5.7%) previously.  The data leaves the focus on a rate hike from the Bank of England at next month´s meeting.  

In this regard, analysts at Rabobank noted that net short GBP speculators’ positions have dropped to their lowest level since March 2022 reflecting an improvement in sentiment linked to a slew of less bad UK economic data. ´´The May BoE policy meeting is in view. The market is fully priced for another 25-bps rate hike and sees risk of additional tightening in the coming months.´´

Analysts at Brown Brothers Harriman explained that the WIRP suggests around 90% odds of a 25 bp hike, with another 25 bp hike priced in for August 3. ´´The odds of one last hike in September or November top out near 20%.  As a result, the peak policy rate is seen near 4.75% vs. between 4.50-4.75% at the start of last week.´´

All eyes on UK CPI

The headline Consumer Price Index is expected at 9.8% YoY vs. 10.4% in February, while the core is expected at 6.0% YoY vs. 62% in February, and CPIH is expected at 8.7% YoY vs. 9.2% in February.

Analysts at TD Securities explained that ´´inflation is proving stickier than the MPC expected in its February projections.´´ The analysts note that ´´both core goods and services prices are proving persistent. March's inflation data is likely to be boosted by rail fares and food.´´ The analysts argue that ´´the risks to our forecast lie around the latter: we assume that despite some improvement in supplies, prices remained moderately high through March, as seen elsewhere in Europe in other March inflation data.´´