GBP has seen a fresh wave of buying across the European morning on Wednesday in response to comments made yesterday by the Bank of England’s chief economist Andy Haldane. Speaking with a London radio station, Haldane endorsed the current rise in inflation expectations, noting that there are “some pretty punchy pressures on prices” in the economy.

Haldane Says Stimulus Might Need to Be Removed

Haldane hinted at the need for the BOE to scale out of its current easing program in a bid to curtail inflationary pressure saying: "If both pay, and costs are picking up, inflation on the high street isn't very far behind. And that's something, you know, people like me are paid to keep a close eye on and we are. And that may mean that at some stage we need to start turning off the tap when it comes to the monetary policy support we have been providing over the period of the COVID crisis."

Upside Inflationary Risks Growing

While the BOE governor Andrew Bailey recently reaffirmed his view that any spike in inflation in the coming months would likely be temporary, Haldane’s comments suggest the likelihood of a possible shift in discussion at Threadneedle street. With vaccination numbers continuing to rise and with the UK progressing steadily along the path to reopening, price pressure are rising steadily. The current wave of better weather in the UK means that economic data for June is likely to see a firm rise in activity, putting further pressure on the BOE.

Will Lockdown End June 21st?

However, the big focus in the near term is whether the UK government will stick to the 21st June “freedom” date. All legal restrictions and social distancing measures are set to be relaxed on that date, allowing for the long-awaited return of indoor hospitality venues. However, given the recent rise in covid cases (particularly the more infections delta variant) there is speculation that this date will be delayed. If this is the case, GBP is likely to take a hit in the near term over the ensuing uncertainty. However, if the reopening goes ahead as expected, GBP is likely to be firmly higher, once again increasing the pressure on the BOE.

Technical Views

GBPJPY

The rally in GBPJPY has seen price trading up as high as the 156 level, stopping just short of testing the 156.66 resistance. While MACD and RSI are both showing bearish divergence, the outlook remains bullish above the 153.39 level. Below there, the 149.39 level is the next support to note.