Despite seeing a heavy sell-off in response to the news last week that the Conservative party had failed to gain a majority in the snap elections, called by party leader and PM Theresa May, GBP has since stabilised and had started to rebound higher, before reversing and moving lower again today. So, what is going on?
There are two three drivers of the current recovery price action in Sterling:
Inflation & Wages
Firstly, the latest inflation data release yesterday showed that CPI rose to 2.9% over May. This marks a further increase from the 2.7% level seen in April and takes headline inflation back to its highest level since June 2013. Core inflation rose also, rising 0.3% from 2.4% in April to 2.7% in June.
Here is a breakdown of the data:
CPI inflation rose 0.2pp to 2.9% in May, the highest level in just
over 5 years, with a rise in recreational goods prices the main driver
of the headline increase.
Higher costs of package holidays, PC games and
PC equipment, after the decline in GBP, were the main factors behind
rise, which accounted for 0.2pp of the 0.17 change in the yearly rate.
Pipeline inflation showed continued signs of abating in May, with the
6% y/y rise in input materials the lowest since last September.
The biggest contributor to this annual change came from crude oil, which
contributed -2.63pp to the 12-month change. Factory gate inflation held
firm at 3.6% y/y in May.
Read more: https://www.orbex.com/blog/2017/06/3-key-factors-driving-gbp/