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Risk event for the week starting 20 June: UK inflation

Having seen sterling rise, even though the Bank of England only delivered a 25bps rate increase this week, next week’s CPI data could be key. Justin McQueen, from Daily FX, looks at a trade around GBP/USD.

Risk event for the week ahead: GBP/USD

(Video Transcript)

It's that time of the week now where we take stock and look ahead. And for this, we're looking at a Risk Event for the week starting Monday 20th June. We're joined now by Justin McQueen from DailyFX.

Hi Justin, what have you got?

Morning, Jeremy.

In terms of what we're looking at, we're looking at cable or GBP/USD. Of course, we had the Bank of England (BoE) yesterday that decided to go with a 25 basis point (bps) rate rise.

Markets have been pricing in a little more than that so, subsequently, yet again, another dovish hike from the Bank of England. However, their wording was, I suppose some would say a little bit more hawkish in the fact that they stated that they would act more forcefully due to inflationary pressures.

CPI data

Of course next week we do have the consumer price index (CPI) reading, the core CPI figures as well, out next week on the 22nd of June. And so they'll definitely be something to watch for, and that'll definitely be a Risk Event that we'll be looking out for in terms of cable.

For me, my bias is still for cable to be a sell-on rally. Of course we saw that ramp higher yesterday into $1.24. I don't really think that was justified and subsequently we have pulled back a bit into the mid $1.22s. I still think if you start fading around possibly around $1.2350 or even the $1.23 handle itself, I still think we could see a bit of a return back towards $1.21 and $1.20 as well. $1.20, very good support as we've seen a couple of times, tested but not actually closing below. So that's definitely the level I'd be targeting on the downside.

So again, rally selling for any sort of bids. I still think the outlook looks particularly weak for the UK. Of course the cost of living squeeze continues to weigh on growth. The BoE expecting a contraction in the second quarter now and higher inflation.

So again, it's still a stagflation play for cable and expecting a pullback on any bounces that we see.

Excellent. Justin, thanks very much indeed. Taking a look ahead to that inflation data out here in the UK. That's the Risk Event of the Week starting Monday 20th June.

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