The UK Consumer Price Index (CPI) for June rose 2.6% year-over-year, down from 2.8% in May and below the market expectation of 2.7% [1][2][3]. Core CPI, which excludes volatile items, remained steady at 2.6% YoY, hotter than the forecast of 2.5% [1][2][3]. On a monthly basis, headline CPI inflation eased to 0.1% in June from 0.2% in May, matching consensus estimates [1][3]. The Input Producer Price Index (PPI) contracted 2% on the month, marking its sharpest decline in over six years, while Output PPI was flat, missing expectations of a 0.4% rise. Year-on-year, input PPI dropped to 7.3% from 9.3%, and output PPI slowed to 3.5% from 3.7% in May [2]. Service sector inflation, closely watched by the Bank of England (BoE), cooled to 3.6% from 3.7% [3].
The British Pound (GBP) weakened against both the Euro and US Dollar following the inflation report, with EUR/GBP rising to near 0.8525 and GBP/USD pinned below 1.3400 after a 1.2% decline over four days [1][2]. The Pound attracted some sellers as the softer inflation data eased concerns about imminent BoE rate hikes [1][3]. Rabobank’s FX team noted that the Pound was the worst performing G10 currency on a 1-day view, reflecting investor unease around the new UK administration’s fiscal direction, with 10-year gilt yields above 5% signaling anxiety [2]. Prime Minister Burnham’s cabinet has promised measures to ease cost-of-living pressures, including a VAT cut on household electricity bills from October, with markets awaiting further announcements [2].
On the Euro side, traders expect the European Central Bank (ECB) to leave interest rates unchanged at its July meeting, avoiding commitments on future rate moves. However, markets have fully priced in two additional ECB rate hikes by early 2027, according to Reuters [1].
Against the Japanese Yen, the Pound saw slight buying interest after the CPI release, rebounding from an intraday low of 218.20. Investors anticipate more volatility in the Pound as UK Retail Sales and preliminary S&P Global PMI data are due Friday [3]. Meanwhile, the Japanese Yen remains weak, with hopes of intervention rising as the currency hovers near multi-decade lows. Japan’s Finance Minister Satsuki Katayama stated authorities would take necessary steps on FX if needed, but declined to specify levels [3][4].
The USD/JPY pair trades firmly at around 163.20, with technical analysis suggesting a bullish bias and potential for a rally towards 164.00 if resistance at 163.50 is breached [4].
CONCLUSION
UK inflation data for June came in softer than expected, prompting a sell-off in the Pound and easing fears of near-term BoE rate hikes. Market sentiment remains cautious amid fiscal policy signals from the new UK government and upcoming economic releases. The Euro and Japanese Yen are also in focus, with ECB and BoJ policy expectations shaping currency moves and volatility.