UK May headline CPI came in unchanged at 2.4% y/y, as had been widely anticipated. Core CPI was also unchanged from April’s reading of 2.1%, as had similarly been anticipated. The details of the report highlighted the impact of higher oil prices, with the cost of fuels and lubricants posting the largest monthly rise since January 2011. Declines in prices in other categories offset the impact of higher crude. PPI prices painted a much different picture, with input prices rising 9.2% y/y in May, up from 5.3% y/y rate in April, and output price inflation rising to 2.9% y/y from 2.7% y/y in the month prior. Sterling traded moderately softer at the initial release of the data, but follow-through selling has been absent as it ran down through S1 at 1.3340 and stalled at the lower trend line at 1.3310. S2 sits at 1.3295 and S3 at 1.3250. The Daily pivot now resides at 1.3280. Meanwhile UK Gilts rallied on CPI data, with the 10-year yield falling to an intraday low of 1.355% before starting to stabilize as a weaker pound saw the FTSE 100 recovering earlier losses and as of 09:05 GMT posting a gain of 0.08%
The Brexit Bill negotiations still hang over sterling and the frantic open warfare within the ruling Conservative party that was evident yesterday in Parliament has simply paused. The relief rally for Cable yesterday ran to the 1.3420 zone, but then evaporated quickly overnight. Today the CPI data weighs and with the FOMC in focus later pressure remains to the downside.
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