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GBP looks through CPI figures; remains focused on Brexit


  • UK CPI Y/Y 2.1% vs 2.1% exp. Core Y/Y 1.9% vs 1.8% exp

  • Pound recovers after May’s disastrous defeat

  • 1.2930 potentially key resistance

The latest look at price pressures in the UK has shown the consumer price index pull back to 2.1% year-on-year as was widely expected. The largest downwards contributions from last time out where the equivalent reading was 2.3% were a fall in Petrol prices and airfares. The core figure which strips out volatile aspects such as fuel prices actually rose a little to 1.9% year-on-year, against consensus forecasts for this to remain at 1.8%. The headline reading is now at its lowest in almost 2 years and fears of runaway inflation have been put to bed for the time being.

Both headline and core inflation in the UK are back around the BOE target level of 2% with the former falling to its lowest level in almost 2 years in today’s release. Fears of runaway inflation have clearly receded for now. Source: XTB Macrobond

Given the recent developments at Westminster, the market reaction to this release has been understandably muted with the latest twists and turns in the Brexit saga a far bigger driver of the pound in the near term. On this front last night’s reaction to the crushing defeat was interesting with the pound recovering from some pretty heavy declines ahead of the announcement to end the day little changed. It seems to have been a case of sell the rumor buy the fact as far as May’s heavy defeat is concerned and despite all the hyperbole surrounding current events, the consensus now seem to believe that all roads lead to a softer Brexit. This assumption does carry more than a whiff of complacency in so readily dismissing the chances of a no-deal Brexit, and should this prospect begin to seem more likely once more then the pound would be vulnerable to significant downside.

Cable bounced strongly after May’s deal was rejected last night, with traders seemingly seeing it as a positive in that it could lead to a softer Brexit. 1.2930 remains potentially key resistance. Source: xStation


Chart of the day - EURGBP (18.05.2022)
Economic calendar: Inflation from Canada, US housing market data
Morning wrap (18.05.2022)
Daily summary: Global stocks jump amid weaker dollar
Dollar with the longest series of declines since March 17, 2022