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Pound Tumbles on a Small Deviation from the Expected Inflation Rate

Pound Tumbles on a Small Deviation from the Expected Inflation Rate

Benjamin Spier, Technical Strategist

THE TAKEAWAY: UK annual inflation rises less than expected to 2.9% -> BoE forecasts higher inflation rate -> Pound declines on the slight miss

UK annual inflation hit a new yearly high in June, but a slight miss of expectations sent the Pound significantly lower.

Consumer prices rose 2.9% from June 2012, slightly lower than expectations for prices to rise 3.0% and up from the 2.7% inflation rate seen in May. Consumer prices declined 0.2% in June from the previous month, according to the UK Office for National Statistics.

Producer prices in June did not rise as much as consumer prices, as the output PPI was 2.0% higher than June 2012. However, the retail price index rose 3.3% on an annual basis.

The rise in inflation falls in line with a Bank of England forecast from April, predicting that the inflation rate will reach 3.1% by Q3 of this year. A forward looking statement from the BoE in the July meeting said it expects inflation to eventually fall back to the target 2.0% rate, and further economic slack is expected for some time despite the appearance of a recovery in the UK economy. The slack in the economic recovery combined with lower inflation could provide reason for further monetary easing.

Therefore, any deviation from expected inflation rates could send the Pound higher or lower, as we saw today. GBP/USD is currently trading around 1.5050 in Forex markets at the time of this writing, and the key 1.5000 figure may provide support.

(How does a Currency War affect your FX trading? Take our free course to find out!)

GBPUSD Daily: July 16, 2013

Pound_Tumbles_on_a_Small_Deviation_from_the_Expected_Inflation_Rate_body_gbpusd.png, Pound Tumbles on a Small Deviation from the Expected Inflation Rate

Chart created by Benjamin Spier using Marketscope 2.0

-- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to instructor@dailyfx.com .

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

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