Despite surging yields, the GBP finds itself in a struggle as the UK grapples with stubborn inflation. This week’s unexpected surge in both headline and core inflation left the Bank of England with no choice but to implement a hefty 50bps hike on Thursday. The UK faces the daunting task of taming inflation without hindering its growth prospects. Brace yourself for potential GBP downturns in the coming weeks if the BoE succumbs to the pressure of short-term interest rates, pushing rates up to the projected 6% mark. The showdown begins!

Other key events from the past week

• GBP: Core Inflation gains, June 21: UK core inflation surprised to the upside at 7.1%y/y vs 6.8% forecast. This shows a rise in UK core inflation and increases the risk of stagflation ahead for the UK. This sent the EURGBP sharply higher.
• GBP: BoE dilemma, June 22: The BoE hiked by 50bps in a surprise move this week. It now faces the incredibly difficult task of tackling inflation without stifling growth. If/as stagflationary fears grow that should weaken the GBP.
• CHF: SNB interest rate decision, June 22: Inflation in Switzerland currently sits at 2.2 which is the second lowest of the G20 countries, but the SNB hiked by 25bps and indicated that additional hikes will still be needed.

Key events for the coming week

• CAD: Inflation data, June 27: CAD inflation data will be crucial this week for the BoC’s rate decision on July 12. If the core reading comes in high then the CAD is likely to strengthen as bets firm up for another 25bps hike.
• Seasonal Insights: Patterson Companies’ strong summer.
• USD: Core PCE print, June 30: The Fed’s preferred measure of inflation is core PCE and this will be a major market focus next week. If this is a major miss to the downside gold bulls will likely be cheering and expecting gold to run higher.

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