GBP/USD is trading below 1.26, consolidating losses. UK headline CPI met expectations at 0.5%. Tensions in the Korean peninsula and between China and India are weighing on sentiment. Fed Chair Powell testifies again later in the day.
By the press time of pre-London open on Wednesday, GBP/USD bounces off the intraday low of 1.2542 to 1.2553, down 0.16% on a day, while printing a two-day losing streak. The pair’s recent weakness could be attributed to the broad US dollar recovery as well as receding risk-on sentiment, backed by the fears of coronavirus (COVID-19) wave 2.0. Additionally, mixed economics and the BOE’s readiness to act to combat the virus measures offer extra weakness to the pair.
Fundamental Overview
The cost of living in the UK as represented by the Consumer Price Index (CPI) for May month is due early on Wednesday at 06:00 GMT. The inflation numbers will be the key for GBP/USD pair as traders look for signs of recovery into the price pressure following the easing of lockdown restrictions. Also making the data important is the recently mixed performance of British catalysts ahead of Thursday’s BOE.
The headline CPI inflation is expected to arrive at 0.5% on an annual basis, softer than the previous 0.8%. The Core CPI that excludes volatile food and energy items is likely to have receded by 1.3% YoY last month compared to the previous rise of 1.4%.
In this regard, analysts at TD Securities said, "we're looking for core CPI to hold steady at 1.4% y/y in May, leaving us slightly above consensus expectations for a drop to 1.2% y/y. We've seen some fairly strong m/m services inflation prints across other European countries that have already reported their May inflation data, so think that we could also see a bit more strength in the UK m/m core print. Although there's of course a ton of uncertainty around these measurements through the lockdown. For headline CPI, we're in line with consensus in looking for a decline to 0.6% y/y."
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