UK inflation may hint a slower pace of BOE hiking, GBP/USD dropped 130 pips! Headline inflation slowed more than expected in March. The data raised a question about what might come after May, which BOE is largely expected to raise the benchmark rates.
- Annual CPI inflation fell to 2.5% in March from 2.7% in February.
- Expect the headline rate to cool further over the course of this year as the sterling has been on the rise this year. The strong currency will pose some challenge on inflation.
- China exports to UK fell 24.4% y/y last month, suggested UK domestic demand is waning.
- Together with dovish ECB minutes last week, we think European currencies may under-perform against the dollar for now.
- Still, in order to throw the MPC off its current path of rate hiking, persisting lower inflationover a longer period is required.
