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U.K. Inflation Rises 4.0 Percent in January, Pound Shows Delayed Reaction

U.K. Inflation Rises 4.0 Percent in January, Pound Shows Delayed Reaction

2011-02-15 10:28:00
Michael Wright, Currency Analyst

Consumer prices in the U.K. rose an annualized 4.0 percent in January after climbing 3.7 percent the month, which was in line with economists’ expectations. At the same time, core prices increased 3.0 amid forecasts of 3.1 percent. The gain in inflation marks the highest level since November 2008 and will lead Bank of England Governor Mervyn King to write a letter to the Exchequer George Osborne, explaining why prices are so high.

Looking, inflation is expected to stay stubbornly above the central bank’s target as the increase in value added taxes (VAT) places upward pressure on price growth. Meanwhile, gains in cocoa, cotton, and sugar will also lead to gains in prices going forward.

Taking a look at price action, the British pound pushed lower against most of its major counterparts as the data was already priced into the markets. GBP traders will now shift their focus to the Bank of England inflation report which will be released tomorrow at 9:30 GMT. As inflation concerns remain, an increase in the inflation report could lead the pound to pare some of its recent gains, while a downbeat tone pared with a dismal jobless claims release could extend Tuesday’s selloff. The last report suggested that prices would ease to around 1.5 percent by the end of 2012.

GBPUSD 15 Minute Chart

U.K._Consumer_Prices_Rise_4.0_Percent_in_January_body_gbp.png, U.K. Inflation Rises 4.0 Percent in January, Pound Shows Delayed Reaction

Source: FXCM Strategy Trader – Prepared by Michael Wright

The GBPUSD reversed course at its overnight high of 1.6104 to currently trade 1.6037 following the U.K. inflation report. As technical indicators begin to paint a bearish picture, bears will look for aclose below 1.36 for confirmation of a reversal in the pair.

Written by Michael Wright, Currency Analyst

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Michael Wright is the author of FX Headlines, Fundamentals vs. Technical’s, Weekly Spotlight, and Forex Trading Weekly Forecast

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


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