The words of BOE Governor Bailey about "apocalyptic" food costs have been taken into account. In response to the news, GBP/USD has room to decline, reversing some of the recent gains.
The main UK Consumer Price Index (CPI) is expected to have risen from 7% YoY in March to 9.1% in April, according to economists. I'll argue that this move is already baked into cable, resulting in a 'buy the rumour, sell the fact' impact, in which GBP/USD could reverse and fall after the announcement, contrary to expectations.
High Expectations
The main cause of the anticipated increase is an April change to government-mandated energy pricing. The key upside driver for the jump will be the bi-annual change in natural gas prices. Because the April 2021 figure will be dropped out, the "base effect" - in this annual release – is expected to compound this. Energy was actually a drag on inflation back then.
Inflation in the United Kingdom:
The Bank of England, on the other hand, can do nothing to
ameliorate what is, after all, an external factor. Higher rates have no effect
on global gas costs.
Second, the sterling gain has already been priced in as a
result of the positive job market data. In March, Britain's jobless rate was
only 3.7 percent, despite a 7 percent increase in earnings, including bonuses.
Both data hint to a thriving economy in which practically everyone is employed
— and earning more money. This additional cash means higher inflationary
pressures. The horse, on the other hand, has already bolted, and the pound has
already recovered.
The Claimant Count Change, or jobless claims, is also rapidly declining:
Finally, when Bank of England Governor Andrew Bailey
remarked that rising food costs could be "apocalyptic," which was
widely reported in British press, the pound rose.
Bailey was, however, talking to emerging markets rather than
the United Kingdom. When the UK's inflation data are released, there may be a
"it could have been worse" reaction, resulting in a sterling
sell-off.
The larger picture
Fourth, the good market sentiment pushed the dollar lower in
a much-needed correction, but this is likely to be fleeting, as the world's
fear factors have not improved significantly.
The move by China to ease the lockdown in Shanghai spurred a
rebound, but Beijing remains restricted.
Russia's war in Ukraine continues to rage, and the Federal
Reserve is adamant about raising interest rates. All of these variables favour
the dollar and have not changed much. The next phase of the dollar rise would
require another sign of increasing pricing in the United States.
Last thoughts
Overall, a 9.1% annual increase in inflation is not
encouraging, and it supports the Bank of England raising interest rates
further. Due to the nature of these pricing pressures, policymakers have
limited options. The hands of the elderly lady are bound.
The AUD/USD exchange rate has broken over 0.7000, indicating
a deterioration in sentiment in Australia.
On a negative Australian Wage Price Index, which is a
carefully followed signal by the RBA, the AUD/USD is struggling 0.7000,
encountering fresh supply. The aussie is weighed down by a stop in US dollar
selling amid a worsening market environment.
USD/AUD News
The EUR/USD is consolidating below 1.0550 ahead of the EU HICP report.
In the Asian session, the EUR/USD pair is battling to break
through key resistance at 1.0550. After a massive upside rise from a low of
1.0354 last week, the asset is witnessing a volatility contraction.
EUR/USD Updates
Gold is expected to revisit multi-month lows near $1,800.
In the first part of Tuesday's trade, the gold price
recovered from four-month lows of $1,787. Gold prices are continuing to fall on
Wednesday as Treasury rates remain higher and Asian markets have gone south,
abandoning Wall Street's robust gains.
News about gold
Why is the Litecoin price poised for a rapid 30 percent recovery?
The price of Litecoin is hovering around $72.8, indicating a
speedy return to the norm. If LTC can break past the $82.3 barrier, investors
may expect a 30 percent increase. The bullish premise will be invalidated if
the daily candlestick closes below $64.6.