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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:

GBP/USD CPI

Click Here for the DailyFX Calendar

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

Release

Expected

Actual

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

-0.1%

-0.2%

Retail Sales ex Auto (MoM) (JUN)

0.3%

-0.1%

CBI Trends Selling Prices (JUL)

6.7%

6.6%

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

Release

Expected

Actual

Gross Domestic Product (YoY) (2Q P)

3.1%

3.2%

Mortgage Approvals (JUN)

63.0K

67.2K

BBA Loans for House Purchases (JUN)

41375

43265

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

GBP/USD Daily

GBP/USD Daily

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

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JUN 2014

07/15/2014 8:30 GMT

1.6%

1.9%

+57

+67

June 2014 U.K. Consumer Price Index

GBP/USD Chart

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

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

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