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Trading the News: UK Consumer Price Index (CPI)

Updates to the UK Consumer Price Index (CPI) may do little to curb the depreciation in GBPUSD as the headline reading is expected to narrow to 1.9% from 2.0% per annum in June.

Image of DailyFX economic calendar

Indications of slowing price growth may drag on the British Pound as it puts pressure on the Bank of England (BoE) to alter the forward guidance for monetary policy.

In turn, the Monetary Policy Committee (MPC) may show a greater willingness to switch gears in 2019, and Governor Mark Carney and Co. may adopt a dovish tone ahead of the next meeting on September 19 amid the growing threat of a no-deal Brexit.

However, an unexpected pickup in the CPI may trigger a bullish reaction in the British Pound as “theCommittee judges that increases in interest rates, at a gradual pace and to a limited extent, would beappropriate to return inflation sustainably to the 2% target.

Impact that the UK CPI report 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)

JUN

2019

07/17/2019 08:30:00 GMT

2.0%

2.0%

-7

+25

June 2019 UK Employment Change

GBP/USD 5-Minute Chart

Image of gbpusd 5-minute chart

The UK Consumer Price Index (CPI) held steady at 2.0% in June, while the core rate of inflation climbed to 1.8% from 1.7% per annum the month prior.

A deeper look at the report showed prices for household goods increasing 0.7% in June to lead the advance, with transportation costs rising 0.4%, while prices for clothing & footwear narrowed 1.0% during the same period. Signs of sticky price growth may keep the Bank of England (BoE) on track to further normalize monetary policy as the central bank achieves the 2% target for inflation.

The British Pound struggled to hold its ground despite the in-line prints, with GBPUSD slipping below the 1.2400 handle, but the move was short-lived as the exchange rate closed the day at 1.2433. Learn more with the DailyFX Advanced Guide for Trading the News.

GBP/USD Rate Daily Chart

Image of gbpusd daily chart
  • The broader outlook for GBPUSD is no longer constructive as the exchange rate snaps the upward trend from late last year after failing to close above the Fibonacci overlap around 1.3310 (100% expansion) to 1.3370 (78.6% expansion).
  • More recently, GBPUSD has snapped the range-bound price action from earlier this month, with the break/close below the 1.2100 (61.8% expansion) handle opening up the Fibonacci overlap around 1.1890 (61.8% expansion) to 1.1950 (78.6% expansion).
  • Will keep a close eye on the Relative Strength Index (RSI) as it continues to hold in oversold territory, with the next area of interest coming in around 1.1680 (161.8% expansion) to 1.1730 (78.6% expansion).

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Additional Trading Resources

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--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.