• UK consumer price inflation fell to 8.7% YoY in April 2023, the lowest since March 2022, primarily due to a slowdown in electricity and gas prices.

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• Despite the decline, inflation rate surpassed market expectations of 8.2% and remained significantly above the Bank of England’s 2.0% target.
• Housing & utilities inflation dropped to 12.3% from 26.1% in March, driven by a notable decrease in the cost of electricity, gas, and other fuels.
• Prices for restaurants & hotels and furniture, household equipment & maintenance also increased at a slower pace.
• Food & non-alcoholic beverages inflation remained close to record highs, while costs accelerated for transport, recreation & culture, and miscellaneous goods & services.
• The core inflation rate, excluding food and energy, rose to 6.8%, reaching the highest level since March 1992, surpassing forecasts of 6.2%.

In the European trading session, the pound registered a modest increase of approximately 0.1% against the US dollar. Despite medium-term perspectives indicating potential selling pressure on the pound, primarily driven by the substantial interest rate gap with the US, the currency could attract buyers in the current session due to a decrease in inflation readings. It’s worth noting that higher core inflation could contribute to a rotational behavior in the exchange rate.

From a technical standpoint, the rate has formed a significant area around the swing highs, making it a target for absorption purposes. Additionally, the pound might find support from buyers around the prior VWAP (Volume-Weighted Average Price) close level.

The auction development of the exchange rate is contingent upon the progress of the US debt ceiling talks. Any indications of a resolution could provide support for the dollar, potentially causing it to strengthen, while simultaneously exerting pressure on the pound.

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