UK’S CPI AHEAD: COULD BOE RATE PATH IS TOO AGGRESSIVE?
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Author: Mr. Amar – Technical Analysts

The pound could embark on another rally against the euro on Wednesday and is poised for wide swings as data showing inflation remains red hot could renew bets on Bank of England (BoE) interest rate hikes. If the inflation data comes out better than expected, as has been the case in recent reports, the BoE’s rate hike expectations could rise again, allowing the pound to stage a slightly stronger rally against the euro.

Data for today’s release is expected to show that the UK CPI and core inflation rose 0.7% to 6.2% and 5.1% respectively in February, the fastest pace in two decades. After recognizing an inflation problem, the central bank has taken steps to contain price pressures, including raising its benchmark interest rate to pre-pandemic levels. The BoE sees risks that high inflation will ultimately weaken private consumption, which in turn could ease price pressures. That’s why he wants to push through cautious rate increases.

The GBP/USD pair saw strong bullish action yesterday as demand for risk-sensitive assets improved after the DXY weakened as investors digested the announcement of seven rate hikes in the week of 2022. The cable has gained almost 2% after printing low near 1.3000 last week. While the UK’s CPI impression and Powell’s speech will remain the main drivers, investors will also focus on the NATO meeting scheduled for Thursday on a diplomatic solution to the Russia-Ukraine war.