CM Trade

Download APP to receive bonus

GET

UK inflation falls, recession expectations rise

2023-02-18
1286

Sterling has fluctuated against the US dollar this week, and British inflation has fallen and economic recession expectations are heating up, further putting pressure on the pound. As the inflation level in the UK has peaked, the pace of interest rate hikes by the Bank of England will also slow down.

UK prices continue to fall but households are still under price pressure. For January's CPI data, Helen Dickinson, chief executive of the British Retail Consortium, pointed out that as food inflation in January was still as high as 16.7%, British households were still under price pressure.


This year's British recession is a high probability event. The British Office for Budget Responsibility (OBR) also predicted that the British economy will decline by 1.4% this year. In 2023, multiple economic headwinds lie ahead for the UK. Including geopolitical risks, high inflationary pressures, suppression of high interest rates, and the negative impact of multi-industry strikes.

UK short-dated bonds led a broad rally in gilts on Wednesday, as signs of easing inflation reinforced expectations that the Bank of England is nearing completion of its round of tightening.


The yield on the 2-year Treasury note, the most rate-sensitive bond, fell as much as 15 basis points to 3.65%. Earlier data showed that UK inflation slowed for the third consecutive month, leading traders to lower their peak interest rate expectations for this round of rate hikes, from 4.69% to 4.53%.

Pooja Kumara, an interest rate strategist at TD Bank, said: “The consumer price index report supports the view that the Bank of England will slow down the pace of rate hikes and end the rate hike cycle as soon as possible. Gilts still have room to rally and I think short-term gilts will outperform as the BoE is likely to end its tightening cycle sooner than the Fed or ECB. I think market bets on the Bank of England's peak rate could drop to 4.3%. ”

After the wage data was released on Tuesday, TD Securities said that investors are not yet fully prepared for the Bank of England's most likely end to its rate hike cycle in March.

The Bank of England released new forecasts on February 02 showing that inflation will fall sharply in 2023 and return to its 2.0% target in 2024. Through its guidance, the bank said it was approaching the end of its rate hike cycle.


Ahead of the inflation data, money markets showed investors were pricing in a 68 basis point hike from the Bank of England by September. Effectively, this is in line with two recent hikes and keeping the bank rate at 4.5% before cutting it again.

Markets quickly trimmed expectations for cumulative remaining rate hikes from the BoE to 54 basis points on the back of the inflation data, down sharply from the 68 basis points forecast the previous day. Therefore, if the central bank really wants to stop raising interest rates in March, or even keep interest rates unchanged, the market needs to further reassess.

The daily K-line chart of GBP/USD shows:

High-level short-term dynamics move down in a stepwise manner, and the short-term decline may continue. The market as a whole is in a weak position and moves downward. For upper suppression, pay attention to around 1.22563, and for low support, pay attention to around 1.18380. , the RSI index is hovering weakly below the 50 balance line, as shown in the figure:


[Disclaimer] This article only represents the author's own opinion, and does not provide any express or implied guarantee for the accuracy, reliability or completeness of the content contained, and does not constitute any investment advice. assumes all risk and responsibility.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

Free Access
Daily Trading Strategy
Download Now

CM Trade Mobile Application

Economics Calendar

More

You May Also Like