GBP/USD rallies to two-month high following UK inflation release

The pound is trading at a multi-month high this morning, building on the strong base of support offered by a prevailing risk-on mood on Tuesday.

Sterling is rallying this morning, with GBP/EUR climbing to €1.1746 and GBP/USD jumping to $1.2761. GBP/CAD has surged to CA$1.7412, while GBP/AUD strengthens to AU$1.9144 and GBP/NZD is muted at NZ$2.0850.

Looking ahead, will the UK’s stronger-than-expected inflation figures continue to underpin the pound through today’s session?

What’s been happening?

The pound held steady through most of yesterday’s trading session, with the currency being underpinned by a cautiously optimistic market mood.

Sterling continued to hold its ground into the evening, despite comments from Bank of England (BoE) Governor Andrew Bailey, in which he said he believed the bank’s next move would be an interest rate cut.

Meanwhile, the euro drifted lower on Tuesday following the publication of Germany’s latest producer price index.

April’s PPI figures reported that producer prices fell more than forecast, stoking expectations that disinflation in the Eurozone’s largest economy may be accelerating.

At the same time, the US dollar was muted yesterday amid a drop in US Treasury yields and prevailing risk-on flows.

However, comments from Federal Reserve policymakers lent some support to the ‘greenback’, with the Fed’s Raphael Bostic suggesting the US central bank shouldn’t move too quickly when loosening its monetary policy.

What’s coming up?

Today’s session kicked off with the publication of the UK’s latest consumer price index.

April’s CPI figures reported UK inflation cooled from 3.2% to 2.3%, missing forecasts it would slow to 2.1%.

The stronger-than-expected inflation figures have given a boost to the pound this morning as investors trim bets for a June interest rate cut from the BoE.

Also in focus this morning will be a speech by European Central Bank (ECB) President Christine Lagarde.

With a June interest rate cut from the ECB largely priced in, EUR investors will be on the lookout for any comments that may hint at further cuts later in the year. Will a dovish outlook from Lagarde pull the euro lower today?

Closing out today’s session will be the publication of the minutes from the Fed’s latest policy meeting.

Fed Chair Jerome Powell was surprisingly cautious in his post-meeting statement. If this is echoed in May’s minutes it’s likely the US dollar will stumble this evening.