MARKET REPORT
Hot US Inflation and UK Political Crisis Keep USD Bid and GBP Under Pressure
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- US core CPI rises more than expected– higher-for-longer narrative reinforced as USD strengthens
- GBP is the worst performing G10 currency as UK political crisis deepens – gilt yields hit highest since 1998
Recap
USD strengthened over 0.3% after US April CPI came in hotter than expected — core inflation rose more than anticipated, reinforcing the higher-for-longer narrative. The details were nuanced, a BLS quirk distorted rents, and stripping that out core inflation would have been subdued. However, super core inflation rose at its fastest pace since January and food prices are rising at their fastest pace this year – enough lingering pressure to maintain a hawkish bias in market pricing.GBP was the worst performing G10 currency, dropping across the board as the UK political crisis dominated. Starmer told his Cabinet he intends to stay, with no Cabinet members challenging him directly and over 100 MPs signing a statement of support – Tuesday could have gone a lot worse for him. However, the situation remains fragile. Markets are watching for any senior Cabinet resignations that could trigger a broader challenge. Key names to watch are Health Secretary Streeting and Manchester Mayor Burnham. UK 30-year gilt yields hit their highest since 1998, with GBP near the foot of the G10 leaderboard.
Today
Market rates
*Daily move - against G10 rates as of 5pm BST on 13.05.26
** Indicative rates - interbank rates as of 5pm BST on 13.05.26
Data points
Click here for a calendar of upcoming economic events Our thoughts
US PPI for April is today's key release at 13:30 BST. After yesterday's hotter-than-expected CPI, another strong print would cement the higher-for-longer narrative and extend USD gains. Consensus sits at 0.5% MoM and 4.9% YoY – a beat would make it very difficult to argue against further Fed rate hikes.
French CPI and Eurozone GDP final readings also print today but are expected to confirm preliminary estimates – unlikely to move EUR materially.
For GBP, there is no major UK data today. GBP is being driven entirely by political headlines. Starmer survived Tuesday's Cabinet meeting but the situation remains fragile. Any senior Cabinet resignation would quickly reignite the leadership challenge and add fresh downside pressure on GBP.
Middle East tensions remain simmering in the background – US-Iran ceasefire uncertainty keeps oil elevated and safe-haven USD demand alive. Until a clear breakthrough emerges, defensive USD positioning is likely to persist.
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