In Thursday’s London session, the Pound Sterling (GBP) clung to gains above the crucial support level of 1.2700 against the US Dollar (USD). The GBP/USD pair remained resilient as traders adjusted their expectations regarding the Bank of England (BoE)’s monetary policy stance.
Previously, there were speculations that the BoE might initiate policy normalization in its June meeting, following more than two years of hawkishness on interest rates. However, these expectations have waned after the Consumer Price Index (CPI) report for April revealed that inflation softened at a slower rate than anticipated.
The CPI report indicated that annual headline and core inflation figures declined to 2.3% and 3.9%, respectively. Notably, the service price index, a key measure influencing BoE decisions, experienced a modest decrease to 5.9% from the previous reading of 6.0%. The persistent inflation in the service sector has hindered the progress of disinflation driven by wage growth.
In light of these developments, investors foresee a delay in potential rate cuts by the BoE, pending further economic data. The upcoming employment and inflation figures, scheduled before the June meeting, could reinforce this stance if they align with the central bank‘s forecasts.
Market participants are also eagerly awaiting the release of the UK preliminary S&P Global/CIPS PMI data for May, expected at 08:30 GMT. Projections indicate a slight improvement in the Manufacturing PMI to 49.5 from 49.1, although it is anticipated to remain below the expansionary threshold of 50.0. Conversely, the Services PMI is forecasted to decline to 54.4 from April’s 55.0.
On Friday, attention will remain on the Pound Sterling as the UK Office for National Statistics (ONS) unveils Retail Sales data for April. This data, reflecting household spending patterns, offers valuable insights into the inflation outlook. Analysts anticipate a 0.4% month-on-month decline in Retail Sales, following a stagnant performance last month. Annually, Retail Sales are expected to contract by 0.2% compared to a growth of 0.8% in March.
Across the Atlantic, the US Dollar (USD) has maintained its gains amidst concerns that progress towards the Federal Reserve’s 2% inflation target has stalled. The minutes from the Federal Open Market Committee (FOMC) meeting in May indicated a dampening of confidence in considering rate cuts due to disappointing inflation data.
Looking ahead, investors will closely monitor the preliminary S&P Global PMI for May and Initial Jobless Claims data for the week ending May 17. Recent trends in jobless claims have signaled a potential easing in the strength of the labor market, warranting attention from market participants.
