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THE TAKEAWAY: UK annual inflation at 2.7% in October -> Tuition fees send consumer prices higher than expected -> Sterling rallies on higher CPI
A beat in UK inflation expectations sent Sterling higher in forex trading. Annual inflation was seen at 2.7% in October according to the release of the consumer price index; that is the highest inflation in five months. Expectations were for consumer prices to rise 2.4% annually following 2.2% inflation in September. On a monthly basis, consumer prices were 0.5% higher, according to the UK Office for National Statistics.
The biggest contributor to the rise in prices in October was university tuition fees, which were up 19.7% annually. There were small moves higher in the prices of food, beverages and transport. Housing and household services saw a small decline in prices.
The unexpected rise in prices reduces pressure on the Bank of England to increase monetary stimulus, which will likely be finished in the near future. The BoE maintains a 2% inflation target, and the bank will try to avoid monetary action that will drive inflation further from their target.
Adding to monetary stimulus is Sterling negative, therefore the sterling rallied in currency markets following the news of a rise in inflation. GBPUSD rallied to near 1.5900, where it found possible resistance by the key figure and the 61.8% retracement of the decline from April through June. Support could be provided by a 4-month upward trend line and the 200-day moving average, which both sit near 1.5850.
GBPUSD 15-minute: November 13, 2012