Sterling was the biggest G10 faller yesterday, dropping the most in four months after the release of a softer than expected inflation report for June. After starting the day above 1.30, GBPUSD fell as much as 1.3% which is the largest intraday fall since early March, with cable now looking offered and on track for four days of declines after an impressive run of form in recent weeks. Gilts gained after the CPI release, with money markets now pricing the benchmark interest rate peaking below 6%.
The better-than-expected UK inflation release follows last week’s softer US print and has led to many investors reassessing just how much further global interest rates will need to rise. The final release of euro area CPI was also released yesterday, coming in line with expectations and remains on a downward path, triggering an ECB official to temper interest rate expectations. ECB member Klaas Knot, traditionally one of the most hawkish members of the Governing Council yesterday jumped on the dovish band wagon to say that monetary tightening beyond next week’s policy meeting is anything but guaranteed. He said, “For July I think it is a necessity, for anything beyond July it would at most be a possibility but by no means a certainty “adding “From July onwards I think we have to carefully watch what the data tells us on the distribution of risks surrounding the baseline.”
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