The report here helps to pull back the recent hawkish market pricing on the BOE and that is dragging the pound lower on the day. It’s a pretty straightforward one as price pressures may be starting to ease in the UK, which is a welcome development to the economy. Not only did we see a moderation in consumer inflation but producer prices are also tailing off further, contributing to the matter. Meanwhile, food price inflation (which has been the main problem) has perhaps run past its peak:
UK food price inflation y/y (%)
That is seeing the pound fall from 1.3030 to 1.2960 now against the dollar. The drop below 1.3000 is a notable technical point but we are also seeing price now start to threaten a break back below the 200-hour moving average (blue line) at 1.2976:
GBP/USD hourly chart
A hold below the key near-term level will see sellers regain control in search of a deeper pullback this week. The 200-week moving average at 1.2885 will be a plausible target if the switch in the near-term bias holds as per the above.
We are seeing bond yields fall across the board and it should continue with UK gilt yields later in the session. A 50 bps rate hike at this point may be invalidated, as price developments allow some breathing room for the BOE to tone down their aggressiveness.
The terminal rate pricing of roughly 6% is likely to be adjusted as well and that should see some further downside for the pound in the short-term, all else being equal.