When is inflation in the UK and how could it affect GBP/USD?

Overview of UK CPIs

The UK cost of living as represented by the Consumer Price Index (CPI) for the month of September is due early Wednesday at 06:00 GMT.

Given the lackluster jobs data recently released, coupled with the Bank of England’s (BOE) readiness for quantitative tightening (QT), today’s UK inflation data will be watched closely by investors. GBP/USD traders.

Headline CPI inflation is expected to hit a 30-year high of 10.0% year-on-year from 9.9% previously, while core CPI, which excludes volatile food and energy items, is expected to improve slightly to 6.4% YoY in the indicated month. , from 6.3% of previous readings. As for the monthly figures, the CPI could drop to 0.4% from 0.5% previously.

It should be noted that the recent pressure on wage prices and the optimistic employment report also highlight the producer price index (PPI) as an important catalyst for the immediate direction of the pair GBP/ usd.

That being said, the PPI Core Output YoY could rise from 13.7% to 12.7% on an unadjusted basis, while monthly drawdowns could reach 0.9% from 0.3% previously. Additionally, the Retail Price Index (RPI) is also on the table for the release, expected to decline to 0.5% on MoM from 0.6% previous reading while maintaining the 12.3% numbers in year-on-year unchanged.

In this regard, Westpac stated,

The intensity of energy inflation and the underlying magnitude of other inflationary pressures will once again figure prominently in Britain’s September CPI. The consensus is 10.0% yr headline, base rate 6.4% yr, both up 0.1 ppt in August.

On the same line, Yohay Elam of FXStreet says,

High prices should trigger a big rate hike from the Bank of England, likely 75 basis points on Nov. 3. However, they could be higher if the government fails to pull itself together and cut costs.

Impact of deviation on GBP/USD

Readers can find FXStreet’s exclusive deflection impact map of the event below. As observed, the reaction is likely to remain confined around 20 pips in deviations of up to + or -2, although in some cases, if notable enough, a deviation can fuel moves above 60-70 pips .

How could this affect GBP/USD?

GBP/USD is pulling back from a five-week-old falling resistance line near 1.1350 ahead of key UK inflation data, near 1.1330 at the latest. In doing so, the Cable pair depicts market indecision amid a lack of major data/events, as well as anxiety over the crucial CPI figure.

Although the BOE has already confirmed its QT from November 1, today’s inflation figures will be important as the leadership of British Prime Minister Liz Truss continues to push the “old lady”, as the central bank is unofficially known, towards faster rate hikes. It should be noted that political nervousness surrounding the UK and market indecision amid a light calendar elsewhere also call into question the significance of the UK CPI for GBP/USD traders.

If the inflation numbers manage to stay firmer on the MoM, in addition to posting the highest year-over-year numbers YOY, GBP/USD is likely to breach the trend’s immediate resistance line and to rush to the monthly high near 1.1500. Alternatively, pullbacks may get another chance to reverse amid market optimism and UK political drama.

Technically, the 50-DMA level near 1.1470 adds to the bullish filters, in addition to the aforementioned resistance line near 1.1250. Meanwhile, a convergence of the 21-DMA and a three-week ascending trendline highlights 1.1140 as key near-term resistance.


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About UK CPIs

The Consumer Price Index published by the Office for National Statistics is a measure of price movements by comparing the retail prices of a representative basket of goods and services. The purchasing power of the pound sterling is pulled down by inflation. The CPI is a key indicator for measuring inflation and changing buying 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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