GBP Rallies as UK Inflation Rises More Than Expected
- CPIH rose to 2.9% in August.
- All eyes on Wednesday’s UK wages and employment releases.
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GBP/USD traded above 1.32600 on the release of higher than expected UK inflation data, putting pressure on the UK central bank to temper price rises.
CPIH rose to 2.9% in August from 2.6% in July and against expectations of 2.8%, while Core CPI rose to 2.7% from 2.4% beating expectations of 2.5%. On a monthly basis, inflation rose by 0.6% after a -0.1% reading in July.
According to the Office for National Statistics (ONS), clothing prices rose faster than last year, which coupled with a hike in the cost of petrol, pushed inflation higher. These effects were partially offset by airfares which rose more slowly than during last year’s summer holidays.
Investors will now seek further clues on the future path of GBP on Wednesday when the ONS releases the latest batch of UK wages and employment data. While UK unemployment is currently at a 40+ year low, average wage growth remains below inflation, causing real wages to contract. And on Thursday we have the latest monetary policy update from the Bank of England. The MPC is expected to vote 7-2 to keep rates unchanged but today’s release may cause the BoE doves to reconsider their stance.
I will be covering UK employment and wages data live on Wednesday at 08:15GMT here.
Chart: GBPUSD Five Minute Timeframe (September 12, 2017)
The latest IG Client Indicator shows retail traders are short GBP/USD by 68% to 32%. We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise.
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--- Written by Nick Cawley, Analyst
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