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Rising interest rates have helped support the GBP since last September as higher rate talks has helped bolster it at a time of rising UK political uncertainty late last year, and helped sustain its gains through to its high in April this year, according to Greg Gibbs, Analyst at Amplifying Global FX Capital.  

Key Quotes

“Some cooling in rate hike expectations in the last month contributed to the GBP’s recent setback.”

“In its May quarterly inflation report, the BoE lowered its inflation outlook somewhat, reducing the urgency to hike rates.   UK inflation rose to a peak of 3.1%y/y headline and 2.7%y/y core in November last year, but it has eased to 2.5%y/y headline and 2.3%y/y core in March, approaching but still above the BoE’s 2% target. Australian CPI was steady in the first quarter near the lower of its 2 to 3% target range.”

“The BoE said that, “The current overshoot of inflation almost entirely reflects the pass-through of the boost to import prices from the depreciation of sterling.”   They forecast inflation to fall back to target (2%) by mid-2020, largely as a result of the fading effect of the weaker GBP.”