The pound outperforms the dollar as inflation remains sticky (Daily analysis 19.04.2023)

As a result of the latest data reducing the likelihood that the Federal Reserve will cut interest rates later this year, the dollar climbed against the majority of developed markets currencies. The EUR/USD pair struggles below the 1.10 handle. An unexpected increase in the UK CPI fueled expectations of greater monetary tightening by the Bank of England in the upcoming months, which contributed to a sharp rise in the pound. In the CEE3 space, the CZK and the HUF rally and outperform the zloty.

In March, the Bank of England was forced to raise interest rates due to a dangerous mix of persistent price and wage pressures. Ahead of the scheduled May 11 meeting, history is repeating itself. Although the labour market data showed an increase in the unemployment rate, persistently high wage growth was the focal point of the report. What is more, in March, core inflation maintained at 6.2 percent y/y, while CPI slowed less than forecast from just 10.4 to 10.1 percent y/y. The GBP/USD exchange rate touched daily highs at 1.2475 and the EUR/GBP pair briefly slipped below the 0.88 mark.