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- U.K. Consumer Price Index (CPI) to Slow for Fifth Time in 2014.

- Core Rate of Inflation to Fall Back From Fastest Pace of Growth This Year.

Trading the News: U.K. Consumer Price Index

A slowdown in the U.K.’s Consumer Price Index (CPI) may help to close the weekly opening gap in the GBP/USD should the inflation report drag on interest rate expectations.

What’s Expected:


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Why Is This Event Important:

The Bank of England (BoE) may continue to soften its hawkish tone for monetary policy as the central bank cuts its outlook for U.K. wage growth, and a weaker-than-expected CPI print is likely to trigger a bearish reaction in the GBP/USD as market participants scale back bets of seeing a rate hike in 2014.

For Real-Time Updates and Potential Trade Setups on the British Pound, sign up for DailyFX on Demand

Expectations: Bearish Argument/Scenario




Average Weekly Earnings in Bonus (3MoY) (JUN)



Retail Sales ex Auto (MoM) (JUN)



CBI Trends Selling Prices (JUL)



U.K. firms may conduct heavy discounting amid weak wage growth paired with the slowdown in private sector consumption, and a dismal CPI reading may instill a more bearish outlook for the GBP/USD as it reduces the BoE’s scope to normalize monetary policy sooner rather than later.

Risk: Bullish Argument/Scenario




Gross Domestic Product (YoY) (2Q P)



Mortgage Approvals (JUN)



BBA Loans for House Purchases (JUN)



The pickup in private sector lending along with expectations for a faster recovery may generate another stronger-than-expected inflation print, and the pound-dollar may continue to push off of the 200-Day SMA (1.6662) should the data print boost rate expectations.

Read More:

US Dollar at Special Risk of Pullback versus Euro and British Pound

COT: Mexican Peso Speculators Flip to Net Short

How To Trade This Event Risk(Video)

Bearish GBP Trade: U.K. CPI Slips to 1.8% or Lower

  • Need red, five-minute candle following the release to consider a short British Pound trade
  • If market reaction favors selling sterling, short GBP/USD with two separate position
  • Set stop at the near-by swing high/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

Bullish GBP Trade: Headline Reading for Inflation Tops Market Expectations

  • Need green, five-minute candle to favor a long GBP/USD trade
  • Implement same setup as the bearish British Pound trade, just in reverse

Potential Price Targets For The Release



Chart - Created Using FXCM Marketscope 2.0

  • Break of Bearish RSI Momentum Raises Risk for Bottoming Process
  • Interim Resistance: 1.6960 (50.0% retracement) to 1.6970 (23.6% retracement)
  • Interim Support: 1.6630 (50.0% expansion) to 1.6660 (200-Day SMA)

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)

JUN 2014

07/15/2014 8:30 GMT





June 2014 U.K. Consumer Price Index


The U.K.’s Consumer Price Index (CPI) expanded sharply at an annualized rate of 1.9% in June, beating the average estimate of 1.6%. The core CPI also exceeded market forecast to reach 2.0% from 1.6% the month prior. The print was mostly pushed up by clothing & footwear and food & beverage. The larger-than-expected figure boosted the pound, with the GBP/USD climbing to a high of 1.7190 during the North American trade. However, the GBP/USD consolidated going the close, with the pair ending the day at 1.7146.

--- Written by David Song, Currency Analyst and Shuyang Ren

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