US CPI and BOE to Determine Whether Cable Hits $1.30

Cable rose more than 7% since the March low of $1.18 on a weakening dollar and as the BOE has continued its hiking cycle. A bit of a whipsaw can be expected over the coming days as the US is expected to report inflation figures and the BOE to hike for the 12th time in a row. Can we see the pound back to 1.30s when chances of the hiking coalition cracking might shift on Thursday?

Quiet Before the Tempest

Last week the Fed hiked but implied further raises would be highly dependent on data while hinting at a pause, supporting cable higher. Friday's NFP pushed toward another hike, and the expectations for Wednesday's inflation numbers could double it. Inflation should be coming down. If it stays flat, it would imply a high growth rate.

The forecast for monthly CPI is a 0.3% increase from 0.1%, but annualised inflation is to come down just slightly to 4.9% from 5.0% prior. However, core inflation could pose a problem for those looking for a pause at the next meeting. On an annualised basis, it is expected to remain steady at 5.6%, well above the 2.0% target, implying a stronger dollar and trouble for the pound until the BOE sheds some light.

Just How Split Will The MPC Be?

After the extended coronation weekend, UK officials have to return to reality, which despite the BOE being the first to hike for more than a year, inflation is still in the double digits. That's well above the rate the BOE had projected for the last quarter. This upcoming meeting is part of the latest cycle, in which peers raised by 25bps, and the overwhelming expectation is that the BOE will keep pace.

While the ECB and Fed signalled that further tightening would be data-dependent, the BOE might not have such a luxury. Still, the vote is expected to be split 7-2 once again, with Silvana Tenreyo and Swati Dhingra stating that holding or even lowering rates would be better given the circumstances. Given the strong consensus for a hike, investors will likely focus keenly on whether any other MPC members join the two dissenters as a sign that the hiking coalition is starting to crack, affecting the pound to the downside.

Pound in Rising Wedge?

Cable has recently moved as high as to break past the upper trendline of a potential rising wedge. $1.2546, the second peak, makes critical support for the successful completion of the pattern, with $1.2447 increasing the chances of a medium-term pullback, if not a reversal. If bulls can push prices above $1.2672, recapturing $1.30 might open the door to $1.33 wide open. Otherwise, the focus should shift to the lower trendline breakout, which may trigger bearish price activity.

Key Takeaways

Cable has risen since March but may experience volatility due to the upcoming US inflation figures and BOE's rate decision. The Fed's recent announcement of a potential pause in further rate raises has supported cable. However, current expectations suggest that annualised inflation remains high and that core inflation is unlikely to decrease. The BOE is expected to raise rates by 25bps, but there is a possibility that some MPC members shift to dissenters, adding uncertainty to the potential rising wedge revealed on the chart of the British pound.