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Lackluster U.K. Consumer Price Index (CPI) to Fuel GBP/USD Losses

Lackluster U.K. Consumer Price Index (CPI) to Fuel GBP/USD Losses

David Song, Strategist

- U.K. Consumer Price Index (CPI) to Narrow to Annualized 2.9% from 3.0% in December.

- Core Rate of Inflation to Uptick for First Time Since August 2017.

Trading the News: U.K. Consumer Price Index (CPI)

DailyFX Calendar

Updates to the U.K. Consumer Price Index (CPI) may spark a mixed reaction in GBP/USD as the headline reading for inflation is expected to downtick for the second consecutive month in January, while the core rate of inflation is projected to increase to an annualized 2.6% from 2.5% in December.

Signs of easing price pressures may fuel the recent decline in GBP/USD as it encourage the Bank of England (BoE) to keep the benchmark interest rate on hold, and the central bank may merely attempt to buy more time at the next meeting on March 22 as ‘any future increases in Bank Rate are expected to be at a gradual pace and to a limited extent.’ However, figures pointing to sticky price growth may push Governor Mark Caney and Co. to prepare U.K. households and businesses for higher borrowing-costs as ‘the Committee judges that, were the economy to evolve broadly in line with the February Inflation Report projections, monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than anticipated at the time of the November Report, in order to return inflation sustainably to the target.

In turn, an above-forecast CPI print may ultimately spark a bullish reaction in the British Pound as it boosts bets for an imminent BoE rate-hike. Want more insight? Sign up & join DailyFX Market Analyst Nick Cawley LIVE to cover the U.K. CPI report.

Impact that U.K. CPI report has had on GBP/USD during the previous release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

DEC

2017

01/16/2018 09:30:00 GMT

3.0%

3.0%

-26

+8

December 2017 U.K. Consumer Price Index (CPI)

GBP/USD 5-Minute Chart

GBP/USD 5-Minute Chart

The U.K. Consumer Price Index (CPI) narrowed to an annualized 3.0% from 3.1% in November, while the core rate of inflation slipped to 2.5% from 2.7% during the same period to mark the slowest pace of growth since July. A deeper look at the report showed cost for telecommunications falling 1.3% in December to lead the decline, with prices for clothing & footwear narrowing 0.9%, while transportation costs increased 2.2% during the same period.

The British Pound lost ground following the mixed data prints, with GBP/USD slipping below the 1.3750 region, but the move was short-lived as the pair ended the day at 1.3791. New to trading? Review the ‘Traits of a Successful Trader’ series on how to effectively use leverage along with other best practices that any trader can follow.

GBP/USD Daily Chart

GBP/USD Daily Chart

Want to know what other currency pairs the DailyFX team is watching? Download and review the Top Trading Opportunities for 2018.

  • Downside targets remain on the radar for GBP/USD following the failed attempts to close above the 1.3970 (50% expansion) region, with the pair at risk for further losses as its initiates a fresh series of lower-highs.
  • Keeping a close eye on the Relative Strength Index (RSI) as it extends the bearish formation from earlier this year, with the former-resistance zone around 1.3690 (61.8% expansion) to 1.3700 (38.2% expansion)in focus as it largely lines up with trendline support.
  • Next downside hurdle coming in around 1.3560 (50% expansion) followed by the Fibonacci overlap around 1.3440 (38.2% expansion) to 1.3460 (50% retracement).

--- Written by David Song, Currency Analyst

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

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

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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