British Pound Makes Headway as UK CPI Remains Above BOE's Inflation Target

The British pound was among the strongest currencies of the day, and rallied after the Office for National Statistics reported that the UK consumer price index (CPI) jumped 0.6 percent during May, due primarily to increases in food, alcohol, tobacco, household, and transport costs. The rise in prices was more severe than anticipated, and kept the annual rate of CPI growth aloft at 2.2 percent, down from 2.3 percent. This ultimately leaves inflation above the Bank of England’s 2 percent target, and suggests that they will not feel the need to aggressively expand their quantitative easing program, which is why the British pound shot higher upon this release.

Looking ahead to Wednesday, the release of the minutes from the Bank of England’s June 4 meeting may not be as market-moving as they’ve been in the past, as there has already been significant detail revealed about the mindset of the Monetary Policy Committee (MPC). Indeed, we already know that the BOE has decided to expand their quantitative easing (QE) program by 50 billion pounds to 125 billion pounds, but there are indications that they may increase the scope of the program even further as they recently published a paper in which they sought comments on the prospect of including purchases of secured commercial paper in their Asset Purchase Facility (APF). That said, the inclusion of secured commercial paper doesn’t necessarily mean that they will allocate more money toward the APF, and this is a detail that will be critical to British pound price action as past QE announcements have weighed on the currency. At the same time as this release, UK jobless claims will hit the wires and they are projected to rise for the fifteenth straight month in May, this time by 60,000, while the claimant count rate may rise to 4.9 percent, the highest since October 1997, from 4.7 percent.