A decline in UK inflation has dampened expectations of a Bank of England rate cut in June | 27 5月 2024

27 5月 2024, GBP/USD

A decline in UK inflation has dampened expectations of a Bank of England rate cut in June


The GBP/USD exchange rate rose for the second consecutive session, trading around 1.2740, near two-month highs, during the Asian hours on Monday. The rise in GBP/USD may be driven by a risk-on sentiment, despite diminishing expectations of an interest rate cut by the Federal Reserve. Please be aware that the UK market will be closed on Monday due to the Spring Bank Holiday, and the US market will be closed on the same day due to the Memorial Day bank holiday.

On Friday, the University of Michigan released its consumer inflation expectations for the next five years. The figure fell slightly to 3.0%, below the forecast of 3.1%. Despite an upward revision to the consumer sentiment index to 69.1 from a preliminary reading of 67.4, the index remained at its lowest level in six months. The data is likely to have contributed to a positive investor sentiment regarding the possibility of a rate cut by the Federal Reserve. This resulted in a weaker US dollar and provided support to the GBP/USD pair.

The CME FedWatch Tool indicates that the probability of a 25-basis-point rate cut by the US Federal Reserve in September has decreased to 44.9% from 49.0% a week earlier.

In the United Kingdom (UK), traders reacted to the release of lower-than-expected retail sales data on Friday. There was a significant decline of 2.3% in monthly sales of goods by retailers in April, which was much worse than the 0.4% decline that had been anticipated. On a year-on-year basis, sales fell by 2.7 per cent, in contrast to the anticipated 0.2 per cent decline. Meanwhile, the GfK Consumer Confidence Index fell to -17 in May, slightly better than expectations of -18 and the previous reading of -19.

In addition, the UK's annual inflation rate moderated, moving closer to the Bank of England's (BoE) 2% target. This moderation has dampened investor expectations for a rate cut in June, potentially providing support to the Pound Sterling (GBP).

Trading recommendation: Trade buy orders when the price reaches 1.2760. Sell at the price level of 1.2710.

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David Johnson
Analyst of «FreshForex» company
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