The Pound Sterling (GBP) faces selling pressure against its major peers on Wednesday. The British currency slides after the release of the United Kingdom (UK) Consumer Price Index (CPI) report for February, which showed that inflation cooled down at a faster-than-expected pace.
Headline CPI increased 2.8% year-over-year (YoY) compared to estimates of 2.9% and the 3.0% increase seen in January. In the same period, the core CPI – which excludes volatile items – rose by 3.5%, against expectations of 3.6% and the former release of 3.7%. Month-on-month headline CPI grew 0.4% after deflating by 0.1% in January, missing estimates of 0.5%.
Inflation in the services sector, which is closely tracked by Bank of England (BoE) officials, rose at a steady pace of 5%. Technically, soft inflation data prompts traders to raise bets supporting the BoE to ease the monetary policy.
However, sticky UK service inflation data could limit traders from going all-in for an interest rate cut by the BoE in the May policy meeting.
Investors brace for more volatility in the British currency as UK Chancellor of the Exchequer Rachel Reeves is scheduled to deliver the Spring Statement in the Commons at around 12:30 GMT.
Reeves is expected to cut welfare spending as she pledged to avoid tax raises and committed to relying on foreign financing for funding investments only. She is also expected to announce a £2.2bn increase in defence spending amid uncertainty surrounding the Ukraine war, according to BBC News.
The scenario of lower fiscal spending measures would be unfavorable for the Pound Sterling as lesser government spending results in moderate economic growth, which keeps inflationary pressures capped.
Source: FXStreet
