UK CPI jumps to 9% in April, highest in over 40 years

IGTV’s Daniela Sabin Hathorn takes a look at the reaction in GBP/USD.

(Video Transcript)

UK CPI soars

The UK is facing the highest consumer inflation in over 40 years.

Data released this morning shows consumer price inflation (CPI) jumping to 9% year-on-year in the month of April. Whilst the reading is slightly below the consensus expected by the market, which was 9.1%, it does evidence the persistent nature of price pressures and the need for the Bank of England (BoE) to act more aggressively whilst trying to balance the added worries of the cost of living crisis that is coming up in the UK.

PPI data

We also had some other inflation data there, as you can see, the producer price index (PPI) also jumping higher than expectations with the retail price coming in line. So, very strong numbers there from the UK. The reading in the market slightly confusing.

What does this mean for the market?

It definitely puts pressure on the Bank of England, as I was just saying.

The pound had a really strong rally yesterday against the US dollar, up about 1.36% as you can see, cementing that attempted reversal that we've seen starting here on Friday.

But so far today we have found resistance there at that 61.8% Fibonacci, just around the $1.2495 area. We were talking about this yesterday. This is likely where those sellers were going to try and creep in.

Definitely the reaction to the news this morning there on the negative side, as you can see, pushing away there down around 0.3% so far.

Employment data

This inflation reading does put a bit of a damper on the good employment data we had yesterday. Nonetheless, we did see wages going up in yesterday's data and that meant that we were likely to see inflationary pressures continue. And this just means that the Bank of England is going to have to work harder to bring down those inflationary pressures while also focusing on the economy and potential recession that they've already warranted.

US interest rates

Whilst talking about central banks, we've also seen Jerome Powell yesterday saying he won't hesitate to raise interest rates as high as needed to fight inflation.

In a Wall Street event, the Fed chairman, who already raised rates this year by 75 basis points so far, doesn't exclude more aggressive moves in the coming months and tightening financial conditions even further if necessary.

In a statement coming out from there he said: "Achieving price stability, restoring price stability, is an unconditional need. Something we have to do because really the economy doesn't work for workers or the businesses or for anybody without price stability. It's the bedrock of the economy."

Powell's remarks have strengthened expectations that the Fed target will actually increase and reach at least 2.75% or 3% by the end of the year.