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U.S. consumer prices fell for the first time in six years in June, and a key measure of underlying inflation remained essentially flat, easing pressure on the Federal Reserve to raise interest rates. According to data released Tuesday by the Bureau of Labor Statistics, the Consumer Price Index (CPI) fell 0.4% in May but rose 3.5% year-over-year. The core CPI, excluding food and energy, was unchanged in May but rose 2.6% year-over-year. The report indicated that the decline in gasoline prices in June provided some relief to consumers as the worst of the energy price shock triggered by the Iran war began to subside. Federal Reserve officials are likely to welcome the data ahead of their meeting at the end of the month; however, renewed tensions between the U.S. and Iran, leading to a rise in oil prices, could prolong the inflationary effects of the conflict. U.S. stock index futures rose and Treasury yields fell as investors reduced their bets on a July rate hike by the Fed. Data showed that core inflation was subdued, primarily due to falling prices for goods such as clothing and used cars. Motor vehicle insurance premiums also fell sharply.Following the release of the CPI data, both WTI and Brent crude oil prices remained relatively stable in the short term, trading at $79.76 per barrel and $85.5 per barrel, respectively.The yield on the two-year U.S. Treasury note fell 10 basis points to 4.18% on the day.Federal Reserve Chairman Warsh: Job growth is in line with labor force growth. The unemployment rate is low and has not changed much over the past year. Layoffs have been relatively few.Market pricing indicates that bets on a Fed rate hike this month have been lowered.

The EUR/GBP is fluctuating close to 0.8750 as focus shifts to UK inflation and BoE policy

Alina Haynes

Mar 20, 2023 13:22

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The EUR/GBP pair is exhibiting a lackluster performance around 0.8750 during the Asian session. As investors prepare for the release of the Bank of England's (BOE) interest rate decision and the United Kingdom's Consumer Price Index (CPI) this week, the cross has moved sideways.

 

Despite the fact that the headline asserts that UBS has revitalized Credit Suisse, the cross appears to be weak. Credit Suisse shareholders will receive one share of UBS for every 22.48 Credit Suisse shares they own, valuing the bank at $3.15 billion (£2.6 billion), according to BBC News. The Swiss National Bank (SNB) stated that the agreement was the most effective means of restoring market confidence and mitigating economic risks. Additionally, the BoE endorsed the "comprehensive set of actions."

 

The consensus opinion on the street is that Governor Andrew Bailey of the Bank of England (BoE) will provide a pessimistic outlook for the interest rate decision amidst concerns of banking turmoil, which will be his top priority.

 

Rabobank analysts also anticipate a 25 basis point (bps) rate hike and caution that the market has not fully factored in this scenario. Andrew Bailey, governor of the Bank of England, would raise rates by 25 basis points to 4.25 percent.

 

Prior to that, the UK inflation data released on Wednesday will be attentively monitored. The annual headline CPI is expected to decline from 10.1% to 9.8%, according to projections. At 5.8%, the core CPI, which excludes the cost of fuels and food, would not change. It should be aware that persistent inflation in the United Kingdom is due to rising food prices and a labor shortage.

 

After the European Central Bank (ECB) raised interest rates by 50 basis points (bps) last week, Gediminas imkus, a member of the ECB Governing Council, stated on Friday that "the terminal rate has not yet been reached" For further deflation, extremely persistent inflation in the Eurozone requires higher interest rates.


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