GBP/USD awaits UK CPI to ascertain BoE’s hawkish bias

Ahead of important data on Wednesday, the GBP/USD bulls are active in the market. Data on UK inflation will be released and may support the BoE’s hawkish stance.

The GBP/USD currency pair has so far moved from a low of 1.2366 to a high of 1.2449, rising by 0.41% on the day to close at 1.2426. The US Dollar’s recent decline has dominated the market and allowed GBP/USD to gain despite an unexpected increase in the unemployment rate in the three months leading up to February.

The markets received a mixed labour report from UK statistics, with the unemployment rate for the three months ending in February rising slightly to 3.8% rather than remaining stable at 3.7%. However, average hourly earnings YoY were 5.9% as opposed to the 5.1% predicted and a previously reported 5.9% (which was 5.7%).

Earnings increased 6.6% YoY quicker when bonuses were excluded. The Bank of England may raise interest rates again in May if pay growth continues to be greater than anticipated, which would strengthen the value of the pound sterling.

The fact that wage growth has remained stagnant contributes to the explanation of several recent positive surprises in inflation data. Consumer Price Index data for March will be released tomorrow. In this regard, it is anticipated that the headline will increase by 9.8% YoY from 10.4% in February, the core will decrease by 6.0% YoY from 62% in February, and the CPIH will increase by 8.7% YoY from 9.2% in February.

In its February predictions, the MPC anticipated that inflation would be more persistent. Prices for essential goods and services are proving to be enduring. Rail fares and food prices are likely to increase March’s inflation numbers. The latter is where the risks to our prediction lie; despite some improvement in supplies, we assume that prices remained somewhat high through March, as indicated by other March inflation figures from other parts of Europe.

The Bank of England’s decision to hike interest rates further could be confirmed by the inflation statistics released on Wednesday. This would help the pound against the dollar as the data would validate recent claims made by BoE Chief Economist Huw Pill that inflation is more difficult to control than initially thought.

On May 11, the Bank of England will hold its next policy meeting. According to experts at Brown Brothers Harriman, the WIRP predicts a 25 bp raise with a second 25 bp boost expected on August 3. The chance of a final hike in September or November is at its highest around 20%. As a result, the top policy rate is projected to be close to 4.75% as opposed to between 4.50% and 4.75% at the beginning of last week.