GBP/USD – Sterling steady, BoE’s Mann says inflation will be hard to beat

The British pound continues to rally and is up for a fourth straight day. BoE member Mann said on Wednesday that the Bank of England will have a difficult time setting monetary policy due to inflation. The US releases the Core PCE Price Index, a key inflation measure, on Friday.

In the European session, GBP/USD is trading at 1.2346, up 0.23%. The pound is poised to record a fourth-straight winning week and has jumped 2.69% in March.

BoE’s Mann sees trouble ahead

The Bank of England has its hands full with high inflation, with no peak in sight. The BoE was not pleased to see inflation accelerate in February to 10.4%, up from 10.1% prior. BoE member Catherine Mann had a sobering message on Wednesday, saying that the drop in energy prices would lower headline inflation, but core inflation was trending higher, which would make it difficult for the BoE to set monetary policy during the year. The BoE’s target of 2% is based on headline inflation, but the core rate, which removes the more volatile components in the headline figure, is considered a better gauge of inflation.

Governor Bailey weighed in on inflation earlier this week, saying that the “path of inflation would not be entirely smooth” but that he expected inflation to fall sharply in the summer. The banking crisis may prove to be a blessing in disguise for the BoE if it dampens economic activity and lowers inflation, which the BoE has not been able to contain despite raising rates to 4.25%.

The banking crisis has eased somewhat, with no further contagion in the banking system since the collapse of several US banks and Credit Suisse. The markets are waiting for the Core PCE Price Index on Friday. This is the Fed’s preferred inflation indicator and it could provide clues about the Fed’s future rate path. The Fed meets next on May 3^rd and the markets have priced in a 61% chance of a pause in hikes, with a 39% chance of a 25-basis point increase.

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GBP/USD Technical

• GBP/USD continues to test resistance at 1.2329. The next resistance line is 1.2425
• There is support at 1.2248 and 1.2152

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