The pound has fallen this morning after the UK’s inflation rate cooled more than expected, to the lowest level in over a year. The CPI index was 7.9% higher in June than a year ago, an impressive drop from the 8.7% reading in May, and potentially a sign that soaring interest rates may be starting to restrain one of the highest inflation rates in the world. Today’s print was the first downward surprise in five months, considerably lower than the 8.2% that most economists were expecting. Core inflation also came in below expectations, dropping from 7.1% to 6.9%, suggesting that the fastest series of interest rate hikes from the BoE in over three decades may finally be starting to reign in soaring prices. This morning’s data will surely give some comfort to MPC members, with the odds of a 0.5% August rate hike, which was almost fully priced in ahead of today’s release, falling to a 50/50 chance.
The pound slipped against the US dollar, with cable dropping below 1.30 to trade as low as 1.2930 before consolidating as traders pared bets on further interest rate hikes from the BoE. The market currently sees the benchmark rate peaking below 6%, which is considerably lower than the terminal rate of 6.5% which was looking likely after last month’s above consensus CPI release.
EURUSD continues to consolidate above 1.12 as we await the release of euro area CPI later this morning. Preliminary readings of inflation in the euro area surprised to the downside in June, with the headline rate falling to 5.5% from 6.1% in May, and this morning’s final reading for June should provide a further insight.