This week, GBP is poised for another significant economic event as the Consumer Price Index (CPI) inflation data for June is set to be released. The outcome of this release will likely determine whether the Bank of England will proceed with a second consecutive interest rate increase of 50 basis points in August.
Throughout 2023, GBP has experienced a notable surge in value. This can be attributed to the UK's inflation demonstrating greater resilience than anticipated, which, in turn, prompted the Bank of England to adopt a more proactive approach to monetary policy. As a result, they have raised interest rates and shifted away from their previously cautious stance.
On Friday last week GBP/USD reached a 15-month high, reaching 1.3142, following a weaker-than-expected U.S. inflation report for June. This unexpected outcome dampened expectations for the Federal Reserve's tightening cycle. In contrast, GBP/EUR remains below its highs for 2023 due to the significant upward movement in EUR/USD and indications that the European Central Bank plans to raise interest rates twice more before the year concludes. Given these circumstances, central bank policies hold great significance, and among their decision-making factors, inflation plays a paramount role.
Also of note is the UK entering into a trade agreement with multiple countries in the Asia-Pacific region, including Japan and Australia. This trade pact, known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), may have a lengthy name, but it opens the doors for the UK to engage with a substantial community of 500 million individuals. Currently it seems being a member of the CPTPP holds primarily symbolic value for post-Brexit Britain. However, in the long run, it has the potential to generate significant benefits and rewards.
With the upcoming CPI release looming, GBP could see gains extended this week, that momentum might be slowed if GBP is deemed overvalued and therefore susceptible to a potential correction.
