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Sterling Softer Despite Stubborn CPI

FOREX
  • GBP trades at the bottom-end of the G10 FX table despite a higher-than-expected CPI reading for May. Headline Y/Y topped expectations by 0.3ppts, stalling at 8.7% for a second month. Meanwhile core CPI crept higher to 7.1% - supported primarily by services inflation - to hit a new cycle high.
  • Despite stronger inflation, GBP has softened to put GBP/USD lower for a third consecutive session as markets price in a more prolonged period of high inflation, low growth in the UK - and possibly assign little likelihood of a more activist Bank of England in response to today's release. GBP/USD traded a post-data high of 1.2802 before fading by close to 100 pips off the session high.
  • Outside of the UK, AUD trades poorly - dropping for a fourth consecutive session against the USD to keep support at the weekly low of 0.6753 under pressure. A break below here opens the 100-dma at 0.6719 and would erase the 38.2% of the early June rally.
  • Focus ahead turns to Canadian retail sales and an appearance from ECB's Schnabel and Nagel. Fed's Powell is also set to speak, appearing in front of the House Financial Services Panel. A release of text is expected.
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