The British pound surged this morning on news that the UK consumer price index (CPI) went unchanged during July, as forecasts had been calling for a 0.3 percent contraction on a monthly basis.
This ultimately kept the year-over-year rate at 1.8 percent, which is below the Bank of England’s 2 percent target but within their acceptable inflation range of 1 percent - 3 percent, and suggests that the central bank won’t rush to expand the quantitative easing program again before year-end. Looking ahead to Wednesday, the minutes from the BOE’s August meeting will be released. However, they may not expose new information as the BOE’s August 6 policy statement and August 12 Quarterly Inflation Report have already revealed a dovish bias and dour outlooks by the Monetary Policy Committee. That said, following the latest UK CPI results, Credit Suisse overnight index swaps have shifted to price in 99.5 basis points work of hikes by the BOE over the next 12 months, up from 91.1 basis points on Monday. As a result, if the minutes highlight a clearly dovish bias by the BOE, the market’s focus may shift back toward the central bank’s liberal stance on quantitative easing, and the British pound could fall sharply.
[B]Check out the Daily Fundamentals in its entirety for a look at what happened across the majors.
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