UK CPI Expected to Remain Stable in June as Markets Anticipate Bank of England’s Decision

• Key CPI Data from the UK’s Office for National Statistics to Be Released This Wednesday.
• June’s CPI is Expected to Remain Above the Bank of England’s Target.
• The GBP/USD Exchange Rate Shows a Bearish Trend Ahead of the CPI Announcement.

On Wednesday at 06:00 GMT, the UK’s Office for National Statistics (ONS) will release the Consumer Price Index (CPI) data for June. This report is pivotal as it influences the monetary policy decisions of the Bank of England (BoE).

The CPI is anticipated to show a monthly increase of 0.2%, consistent with the previous month, while the annual CPI is expected to remain steady at 3.4%. The core CPI, which excludes volatile items, is also projected to hold at 3.5% year-over-year.

What to Expect from the Upcoming UK CPI Report?

Following a peak at 11.1% at the end of 2022, the UK’s annual inflation rate has decreased to 1.7% in September 2024, falling below the BoE’s target of 2%. Interest rate cuts commenced in August 2024, reflecting a cautiously optimistic outlook from policymakers. The election of Donald Trump in the US and his protectionist policies are expected to reintroduce inflationary pressures globally, prompting central banks to adopt a more cautious stance on monetary loosening.

The BoE maintained the interest rate at 4.25% on June 19, with a split decision among policymakers. Despite global uncertainties, the monetary policy is not set on a predetermined path, with the next meeting scheduled for August 7.

Lower-than-expected economic indicators have negatively impacted the Sterling, with recent GDP contraction raising concerns about the UK’s economic health. This might compel the BoE to lower rates to support growth, though inflation concerns may lead to a pause in rate cuts.

Scotiabank analysts highlight that market participants are keenly awaiting the CPI data, which is unlikely to alter the BoE’s current stance but could influence future decisions.

Impact of the UK CPI Report on GBP/USD Exchange Rates

Softer-than-expected CPI figures could increase the likelihood of a rate cut, while higher inflation may prompt a hawkish response from the BoE.

As the announcement approaches, the GBP/USD pair is testing the 1.3400 level, influenced by strong USD demand and GBP weakness. Valeria Bednarik, Chief Analyst at FXStreet, notes that the GBP/USD pair is currently oversold, with technical indicators suggesting a continued bearish trend unless there are significant shifts in market dynamics.

Bednarik also points out potential resistance and support levels, indicating that a significant move beyond the 1.3400 mark could lead to further gains, particularly if the USD weakens.