GBP/USD is showing limited movement in the Tuesday session. In North American trade, GBP/USD is trading just above the 1.29 level. On the release front, CPI jumped to 2.7%, edging above the estimate of 2.6%. In the US, construction numbers disappointed, as both Building Permits and Housing Starts were weaker than expected. On Wednesday, the UK will release wage growth and unemployment rolls.
CPI, the primary gauge of consumer inflation, continued to move upwards, posting a sharp gain of 2.7% in April, matching the BoE forecast for inflation in the first quarter. This reading marked the strongest gain in CPI since September 2013. The pound briefly responded with gains, as speculation has increased that the Bank of England may raise interest rates to keep inflation under control. The weak pound has contributed to higher inflation, which has hurt wage growth and caused consumers to scale back on spending. The BoE has warned that living standards are set to drop, and the markets will be keeping a close eye on the wage growth release on Wednesday, which is expected to edge up to 2.4%.
President Trump has been pressing the damage control button since last week, as the White House and Congress remain focused on the fallout from Trump’s dismissal of FBI director James Comey. There was more bad news for President Trump on Tuesday, with a report in the Washington Post that Trump had shared confidential intelligence reports with Russia’s foreign minister at a meeting last week. The White House has denied the report, but the timing is particularly bad for Trump, who is already under investigation for possible Russian involvement in the presidential campaign. The markets are concerned that Trump will be so busy trying to put out political firestorms, that his agenda of increased fiscal spending and tax reform will stall. These jitters could hurt investor confidence and send the US dollar downwards.
