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GBP U-Turn as Inflation Inspired Rally Fades Fast

FOREX
  • UK markets have drawn focus across the European morning following the higher than expected CPI print for April. While headline CPI dipped to 8.7% from 10.1% prior - it was a far slower step-down for inflation pressure, and core also accelerated to 6.8% from 6.2%. As a result, markets have rushed to price in a higher-for-longer approach at the Bank of England, tipping the assumed peak policy rate close to 5.50% for the first time since the fallout of the Truss budget last year.
  • GBP's initial inflation-inspired rally faltered following the Gilt open, with markets returning to the previously observed pattern of selling the currency alongside notable increases in short-end rates. GBP/USD corrected off the high of 1.2470 down to the 1.2400 handle on heavy volumes, with activity across futures markets over double what you'd expect to see at this time of day.
  • Despite GBP's reversal lower, NZD remains the poorest performer in G10 following the RBNZ rate decision. The bank raised rates by 25bps - as expected - but unexpectedly signaled that their tightening cycle has now concluded, resulting in NZD/USD dropping below 0.6150 for the first time since April.
  • Focus turns to central bank appearances later today, as BoE's Bailey speaks at a WSJ event, ECB's Lagarde marks the 25th anniversary of the ECB and Fed's Waller talks on the economic outlook. The FOMC minutes also cross.
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