GBP flows: GBP slightly firmer after CPI
May CPI was only marginally firmer than consensus, but GBP was due a recovery after recent losses against the EUR
EUR/GBP has fallen 5 pips in response to the UK CPI data which is very marginally on the strong side of consensus. While the 0.2% m/m gain in both headline and core was in line with expectations, the headline y/y rate fell slightly less than expected, dipping to 3.4% rather than the expected 3.3%. In practice, the data is in line with consensus, but EUR/GBP had moved higher in the last week since the weak labour market data and remains elevated relative to the movements in yield spreads we have seen. This data makes a rate cut from the BoE tomorrow even more of a longshot than it was, and should consequently limit the enthusiasm of the GBP bears to go into the meeting short GBP. The GBP recovery could therefore extend a little further, provided risk sentiment holds up through the day.
