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CPI Slightly Above Target 

GBPUSD is trading higher today on the back of the latest set of UK inflation figures released this morning. Annualised headline CPI in April was seen cooling further from 3.2% prior to 2.3%. While a strong move back towards the BOE’s 2% target, the reading was slightly above the 2.1% the market was looking for. Similarly, core CPI was recorded at 3.9%, down from 4.2% prior but above the 3.6% the market was looking for. With both readings coming in above forecasts the data is seen as diluting near-term rate cut chances ahead of the upcoming June meeting.
 

June Easing in Focus

Prior to today’s inflation report, traders had been pricing in a stronger likelihood of a cut in June. BOE governor Bailey recently signalled that cuts could come as early as June, with BOE’s Broadbent echoing this view, saying that if the UK economy continued to develop as expected, summer cuts would likely be appropriate.

Traders will now be carefully scrutinising any incoming BOE commentary ahead of the June meeting in a bid to establish whether CPI is close enough to warrant a cut at this stage, or if the BOE wants to see a final drop down below target. For now, strength in GBP suggests traders feel a June cut is likely off the table.
 

Technical Views

GBPUSD

(Click on image to enlarge)

The rally in GBPUSD has seen the market breaking back above the 1.2612 level. Price is now fast approaching a test of the 1.2831 level next, with the bear trend line there also. This is a key resistance area with a break here marking a firmly bullish signal. 1.2612 remains key near-term support to watch. 

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