The UK CPIs Overview
The cost of living in the UK as represented by the Consumer Price Index (CPI) for February month is due early on Wednesday at 07:00 GMT.
Given the recently released mixed employment data, coupled with the firmer economic activity numbers and the doubts over the Bank of England’s (BOE) next moves, today’s British inflation data will be watched closely by the GBP/USD traders. Also increasing the importance of the UK CPI is the looming banking crisis and the policymakers’ push for measures that could help the market ward off the risks.
That said, the headline CPI inflation is expected to decline further from the 41-year high marked in October while easing to 9.8% YoY in February, versus 10.1% prior. Further, the Core CPI, which excludes volatile food and energy items, is likely to remain stagnant near 5.8%. Talking about the monthly figures, the CPI could jump to 0.6% versus -0.6% prior.
Also important to watch is the Retail Price Index (RPI) figures for February, expected to rise to 0.6% MoM and drop to 13.2% YoY versus 0.0% and 13.4% in that order.
Deviation impact on GBP/USD
Readers can find FXStreet's proprietary deviation impact map of the event below. As observed, the reaction is likely to remain confined around 20-pips in deviations up to + or -3, although in some cases, if notable enough, a deviation can fuel movements over 50-60 pips.
How could it affect GBP/USD?
GBP/USD picks up bids to reverse the previous day’s pullback from a seven-week high as optimism surrounding the UK’s economic recovery joined the latest chatters that UK PM Rishi Sunak will be able to convince the European Research Group (ERG) and the Democratic Unionist party (DUP) to back his much laborious Brexit deal. Adding strength to the recovery moves could be the US Dollar’s weakness ahead of the all-important Federal Open Market Committee (FOMC) monetary policy meeting.
That said, the recent improvement in the British data and expectations of overcoming the labor problems, and softer UK inflation data may help the GBP/USD bears to retake control. However, the UK CPI may have a little less important for the Cable traders this time as the Fed’s verdict and voting on the Brexit bill in the UK’s House of Commons loom. Even so, a strong UK inflation figure won't hesitate to please the Cable pair buyers as the Bank of England (BoE) is ready for the last hawkish dance.
Technically, a four-month-old horizontal resistance area surrounding 1.2270-90 challenges the GBP/USD bulls cheering a sustained break of the 50-DMA hurdle surrounding 1.2145.
Key notes
GBP/USD resists welcoming bears above 1.2200, UK inflation, Brexit vote and Fed eyed
GBP/USD Price Analysis: Rises back above the 1.2200 mark, supported by 50-DMA
About the UK CPIs
The Consumer Price Index released by the Office for National Statistics is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchasing power of the GBP is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as positive (or bullish) for the GBP, while a low reading is seen as negative (or Bearish).
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