UK Inflation Miss Sparks Dovish BoE Talk as Oil Prices and Fed Loom Large
Inflation Underdelivers in the UK as Markets Eye BoE and Global Risk Sentiment
Fresh UK inflation data released Wednesday offered little validation for the Bank of England’s recent hawkish rhetoric, as softer-than-expected figures in key areas reignited dovish speculation just ahead of the central bank’s rate decision.
Headline CPI for May came in at 3.4% year-on-year, a slight deceleration but marginally above expectations. Core inflation met forecasts at 3.5%. However, the services inflation component—closely monitored by the BoE as a gauge of domestic pricing pressure—slipped to 4.7%, below consensus for 4.8%.
“The Bank of England’s recent hawkish turn has not been endorsed by data so far,” said Francesco Pesole, FX strategist at ING. “Jobs, growth, and now inflation figures have all undershot expectations. This raises the risk of a more dovish tone at Thursday’s meeting, though a rate cut still appears unlikely.”
With UK data tilting dovish and geopolitical risks weighing more heavily on sterling than the euro, Pesole sees further upside in EUR/GBP. “Unless the BoE surprises markets with a hawkish message, a move to 0.860 in EUR/GBP may well be on the cards.”
Oil Markets: Geopolitical Risks Revive Inflation Fears
Meanwhile, rising geopolitical tensions in the Middle East have pushed oil prices sharply higher, threatening to undo the inflation progress seen across major economies. Brent crude has retraced nearly all of its year-to-date declines, now approaching the psychologically significant $90 per barrel threshold.
According to Standard Chartered economists Madhur Jha and Ethan Lester, this reversal marks a potential oil price shock with implications for inflation and global growth.
“Oil price increases have a greater economic impact than declines, especially through headline CPI,” they noted. “A 10% rise in oil prices could shave 0.1 to 0.2 percentage points off global GDP growth, while boosting inflation by 0.4 points in a median economy.”
The economists identified several economies at heightened risk from oil price volatility, including Jordan, South Africa, and Thailand, citing net fuel imports, transport inflation exposure, and limited fiscal space. By contrast, countries like the UAE, Switzerland, and Peru are seen as more insulated due to stronger public finances and domestic energy resources.
All Eyes on the Fed: DXY in Focus Ahead of FOMC
The US dollar index (DXY) bounced to 98.64 on Wednesday, as global markets turned cautious ahead of the Federal Reserve’s policy decision. Rising oil prices and equity market weakness added to the bid for the greenback.
OCBC analysts Frances Cheung and Christopher Wong said attention is now firmly on the Fed’s updated dot plot and Chair Powell’s press conference. “While no rate change is expected, a hawkish shift in the dot plot—such as signalling only one cut instead of two by year-end—could fuel further USD strength.”
Conversely, any indication of softening from the Fed could renew selling pressure on the dollar, particularly in light of lingering global growth concerns and softer US data.
For similar Forex Markets news please visit our forex page.
Please visit our Disclaimer page.
Disclaimer
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets.
TerraBullMarkets.com does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets or any financial instrument involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress.
All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of TerraBullMarkets.com nor any of its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
TerraBullMarkets.com and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. TerraBullMarkets.com and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and TerraBullMarkets.com are not registered investment advisors and nothing in this article is intended to be investment advice.