Initial Bid On CPI Data Fades As Markets Assess Stagflationary Impulse

GBP initially knee jerks higher on the back of the firmer than expected CPI print, briefly topping $1.2800 before fading back to print little changed vs. pre-data levels, showing around $1.2765.

• Today’s release builds a more stagflationary narrative into the GBP outlook.
• ~31bp of tightening was priced into the BoE-dated OIS strip for tomorrow’s gathering at yesterday’s close, that will likely see a hawkish adjustment in lieu of this morning’s data (as we noted before the release, a notable upside surprise could see 1-3 MPC members voting for 50bp at this week's meeting. This surprise definitely comes into that category - so we do now look for some hawkish dissents tomorrow). Just over ~140bp of cumulative tightening is priced re: the terminal rate at present.
• Initial technical resistance is seen at the 0.618 projection of the Mar 8 - May 10 - May 25 price swing ($1.2849), while support comes in at May 10 high/Jun 15 low ($1.2680/30)