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GBP Drops Sharply on Weak UK Inflation Data | Webinar

GBP Drops Sharply on Weak UK Inflation Data | Webinar

Martin Essex, MSTA, Analyst

GBP price, news and analysis:

  • The British Pound has fallen sharply after news that the CPI measure of UK inflation held steady at 2.4% year/year in June rather than rising to 2.6% as analysts had predicted.
  • The data make a quarter-point UK rate increase to 0.75% on August 2 less likely – the probability of a hike has fallen to 70% from 77% before the numbers.

Our trading forecasts for Q3 have just been published; you can find the GBP guide here.

And check out the IG Client Sentiment data to help you trade profitably.

UK inflation data add to downward pressure on GBP

The British Pound has fallen sharply after news that the CPI measure of headline UK inflation held steady at 2.4% year/year in June rather than rising to 2.6% as analysts had predicted. The core inflation measure also came in below expectations, falling to 1.9% when a same-again 2.1% had been forecast.

The data make a rate increase to 0.75% from 0.5% when the Bank of England’s monetary policy committee meets on August 2 less likely, and as a result the probability of a hike has fallen to 70% from 77% before the figures were released.

In response to the numbers, GBPUSD fell back, as did GBPJPY, while EURGBP rose.

GBPUSD Price Chart, Five-Minute Timeframe (July 17-18, 2018)

Latest GBPUSD price chart.

Chart by IG

GBP outlook

Looking ahead, GBP will likely remain under downward pressure as the UK Government continues to squabble about Brexit and the latest numbers back the view of the Bank of England that inflation pressures are subsiding despite the weakness of GBP and higher fuel prices.

There is support at the 1.30 “round number” but few signs yet that the selling has been overdone. Moreover, retail trader data show 73% are now long while only 27% are short. Taking a contrarian view to crowd sentiment suggests the outlook for GBP therefore remains bearish.

Data for manufacturers’ raw material prices and factory gate prices also came in lower than predicted, implying that consumer price inflation could continue to drop.

Now eyes will turn to UK retail sales figures tomorrow, Thursday, and public borrowing numbers Friday.

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--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

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

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