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UK Inflation at a high

UK Inflation at a high

FX markets are likely to be rather muted this morning as they wait for Bernanke’s testimony before Congress this afternoon. Having seen the volatility his remarks cause, it’s most likely he’ll strike a chord right down the middle and remind the market  that monetary policy will end one day but not for the next few months.

Inflation in the UK rose as expected with the CPI annual rate increasing to 2.9% in June from 2.7% in the previous month. Meanwhile, the broader measure of RPI inflation rose as well in May driven largely by the increase in petrol prices.

Although June may turn out to be the peak in UK inflation, the recent rises in oil prices and the depreciation the pound mean that prices are likely to fall very slowly from here. UK factory gate prices also jumped 2.0% in June all suggesting monetary policy will remain loose for the foreseeable.

Trading sentiment was dominated by investors positioning themselves ahead of today’s MPC minutes and Bernanke’s monetary policy testimony. GBP/USD currently at 1.5180 while GBP/EUR was trading below the €1.15 level early this morning it’s now up a little at 1.1550.

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