FXWIREPRO: Cyclical Effects Between Uk Inflation-Brexit- BoE- GBP
The inflation continues its global trend higher with UK and Sweden following the preliminary German and EU reads higher.
U.K. Consumer prices went up 0.5% YoY in March of 2016 which is on track of BoE's target of 2%, following a 0.3% rise in the previous two months and compared to market expectations of a 0.4% increase. It is the highest inflation rate since December of 2014.
The recent short term volatilities of sterling in both spot as well as FX option markets are majorly owing to BoE's monetary policy that is scheduled tomorrow. Officials are expected to stand pat on the benchmark interest rate a record low 0.5% when they announce their decision on Thursday.
Subsequently, what is weighing on the pound's slumps is that, the expectations on BoE unlikely changes but the chances for lower interest rates in H1 of 2016 has grown up to 33%, an increase from the February survey that had placed the odds at only 10%, above all lingering Brexit probabilities add an extra pressure on sterling's depreciation.
In addition to that, A recent poll shows that the percentage of Britons in favor of a Brexit, The support for the U.K. to leave the EU has risen to 45%, compared to the 42% who prefer to stay, according to the most recent ICM survey.
With Britain’s June 23 referendum on European Union membership clouding the outlook, a vote to remain could turn attention to when the Bank of England will start raising interest rates.
The pound, which was boosted by the inflation data release yesterday, weakened on the publication of the poll. In particular the GBP/USD which had risen earlier to an intraday high of 1.4346 was dropping 0.24% to 1.4205.
EUR/GBP slipped 0.14% to 0.7997, while GBP/JPY rose 0.27% to 154.11.
One thing is for sure, in Brexit scenario, the British Pound would tumble against majors, while the currency would recover if the British voters would decide to stay in the EU and accordingly BoE turn on interest rate raising cycle.
The material has been provided by InstaForex Company - www.instaforex.com