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The UK’s latest CPI unexpectedly showed the largest decline in nearly two years. Economists at Commerzbank analyzed the pound after the release of the inflation data.
UK inflation surprise weighs on pound
UK consumer prices rose at a much slower pace than expected in June. The resulting strong market reaction confirms our expectation that market-priced interest rate expectations do not justify sustained GBP strength.
Instead, we think the BoE will only tighten monetary policy if necessary to keep inflation expectations in check. As a result, the downward revision in interest rate expectations following Wednesday’s inflation data is not far-reaching enough for us to see further GBP weakness in sight.
