Overall Sterling confidence remained very fragile during Wednesday with further concerns over the economic outlook and persistent speculation that the Bank of England would be unable to sanction aggressive rate hikes. With a series of aggressive rate hikes from the Federal Reserve and more hawkish rhetoric from the ECB, there were expectations that relative yields would move against the UK currency. The renewed increase in Brexit tensions was also a negative Sterling factor with further UK threats to suspend the Northern Ireland protocol. There was a slide against the dollar after the stronger than expected US inflation data. There was renewed UK selling later in the day with a fresh dip in risk appetite undermining support. RICS housing data remained strong with the index at 80% for May from 74% previously. UK GDP, however, declined 0.1% for March with first-quarter growth held at 0.8% and below forecasts of 1.0%. Industrial output and trade data were also worse than expected.
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7.00 Gross Domestic Product (QoQ) (Q1) Act. 0.8% Exp. 1% Prev. 1.8%
On Wednesday, ECB President Lagarde stated that asset purchases should be completed early in the third quarter and that the first rate hike would take place sometime afterwards and this could be a period of weeks. She added that it looks increasingly unlikely that the disinflationary dynamics of the past decade will return. Council member Schnabel stated that risks are growing that current high inflation is becoming entrenched in expectations and inflation could stay at painfully high levels for a considerable period of time. In this context, she added that the urgency for monetary policy to take action to protect price stability had increased in recent weeks. The rhetoric overall suggested that the ECB was signalling more strongly that rates would be increased in July and also that the longer-term path of interest rates should be revised higher. There were also source reports that the deposit rate would be moved back above zero this year with some Euro protection.
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US consumer prices increased 0.3% for April compared with expectations of a 0.2% increase with the decline in the year-on-year rate limited to 8.3% from 8.5% and above expectations of 8.1%. Food prices increased 0.9% on the month with an 8.3% annual increase while energy prices increased 30.3% over the year despite a 2.7% monthly retreat. The underlying rate declined to 6.2% from 6.5%, but this was also slightly above market expectations of 6.0%. Used car and apparel prices declined on the month, but there was a strong increase in the cost of transport services on the month.
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