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EUR/GBP Recovers After UK Inflation Misses Expectations

EUR/GBP Recovers After UK Inflation Misses Expectations

Nick Cawley, Strategist

Talking Points

- EURGBP recovers after ‘sell the rumor, buy the fact’ trade pushed the pair below 0.84600.

- Inflation steady but input price pressure increases.

- See the DailyFX Economic Calendar and see what live coverage for key event risk impacting FX markets is scheduled for next week on the DailyFX Webinar Calendar.

Eagerly awaited UK inflation data failed to live up to market expectations, despite inflation hitting its highest level since June 2014, taking the edge off the latest downturn in EURGBP. January CPI y/y was reported at 1.8% against expectations of 1.9%, while core CPI was reported at 1.6% against market expectations of 1.7%. While these figures may help Bank of England governor Mark Carney push back against any overly hawkish talk of rate rises, the recent weakness in the British Pound is causing input price pressure to increase.

Annual input prices rose by 20.5%, against expectations of a rise of 18.3%, while December’s figure was upped to 17.0% from a prior 15.8%.

Commenting on today’s inflation figures, ONS Head of Inflation Mike Prestwood said: “The latest rise in CPI was mainly due to rising petrol and diesel prices, along with a significant slowdown in the fall in food prices.The costs of raw materials and goods leaving factories both rose significantly, mainly thanks to higher oil prices and the weakened pound.”

While UK inflation creeps higher and starts to hit consumers in the pocket, house owners got an unexpected boost this morning. Average house prices in the UK increased by 7.2% in the year to December 2016 (up from 6.1% in the year to November 2016), continuing the strong growth seen since the end of 2013. However, annual growth has been weaker in the second half of 2016 compared with the first half of the year, the ONS said.

EURGBP broke back above the 0.85000 level after the release after earlier trading close to a fresh 2017 low around 0.84590.

Chart EURGBP 15-Minute Timeframe (February 13 – 14, 2017)

Chart by IG

Upcoming GBP Event Risk – Wednesday February 15.

--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

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