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Bullish GBP/USD Outlook to Gather Pace on Faster U.K. Inflation

Bullish GBP/USD Outlook to Gather Pace on Faster U.K. Inflation

David Song, Strategist

- U.K. Consumer Price Index (CPI) to Increase for First Time in 2014.

- Core Inflation to Rise 1.8%- Fastest Rate of Growth Since November.

Trading the News: U.K. Consumer Price Index

A marked rebound in the U.K.’s Consumer Price Index (CPI) may pave the way for fresh highs in the GBP/USD as it puts increased pressure on the Bank of England (BoE) to normalize monetary policy sooner rather than later.

What’s Expected:


Why Is This Event Important:

Indeed, the BoE Minutes may reveal a growing dissent within the Monetary Policy Committee (MPC) as U.K. officials anticipate a stronger recovery in 2014, and heightening price pressures may boost the bullish sentiment surrounding the British Pound as it spurs a more material shift in the policy outlook.

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Expectations: Bullish Argument/Scenario




Net Consumer Credit (MAR)



GfK Consumer Confidence (APR)



Retail Sales inc. Auto (MoM) (MAR)



The ongoing pickup in household sentiment along with the resilience in retail sales may push U.K. firms to ramp up consumer prices, and a sharp uptick in the headline reading for inflation should foster a bullish reaction in the GBP/USD as it fuels interest rate expectations.

Risk: Bearish Argument/Scenario




Jobless Claims Change (APR)



BRC Shop Price Index (YoY) (APR)



Mortgage Approvals (MAR)



Nevertheless, efforts to cool the house paired with the persistent slack in the real economy may continue to dampen the outlook for price growth, and a dismal CPI print may generate a larger correction in the GBP/USD as market participants scale back bets of seeing higher borrowing costs ahead of schedule.

How To Trade This Event Risk(Video)

Bullish GBP Trade: U.K. CPI Climbs 1.7% or Higher

  • Need green, five-minute candle following the release to consider a long British Pound trade
  • If market reaction favors buying sterling, go long GBP/USD with two separate position
  • Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward
  • Move stop to entry on remaining position once initial target is hit, set reasonable limit

Bearish GBP Trade: Headline Reading for Inflation Disappoints

  • Need red, five-minute candle to favor a short GBP/USD trade
  • Implement same setup as the bullish British Pound trade, just in opposite direction

Potential Price Targets For The Release



Chart - Created Using FXCM Marketscope 2.0

  • Retains Ascending Channel from 2013- Higher Low in Place?
  • Interim Resistance: 1.7000 Pivot to 1.7030 (100.0% expansion)
  • Interim Support: 1.6730 (61.8% expansion) to 1.6720 (50.0% retracement)

Impact that the U.K. CPI report has had on GBP during the last release


Data Released



Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

MAR 2014

04/15/2014 8:30 GMT





March 2014 U.K. Consumer Price Index


U.K. consumer prices increased an annualized 1.6% in March after expanding 1.7% the month prior, while the core rate of inflation grew 1.6% during the same period to match the slowest pace of growth for 2014. Despite the slowdown, the in-line CPI prints pushed the GBP/USD back above the 1.7000, with the pair ending the day at 1.6723.

--- Written by David Song, Currency Analyst

To contact David, e-mail Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.

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