When are the UK CPIs and how could they affect GBP/USD?

The UK CPIs Overview

The cost of living in the UK as represented by the Consumer Price Index (CPI) for May month is due early on Wednesday at 06:00 GMT. Given the recent escalation in the price data during the last three months, coupled with the Bank of England’s (BOE) emphasis on CPI to dial back the bond purchase and reflation fears in the US, today’s data will be watched closely by the GBP/USD traders. It should, however, be noted that the presence of the US Federal Open Market Committee (FOMC) meeting dims the importance of the event a bit.

The headline CPI inflation is expected to rise from 1.4% previous readouts to 1.8% on an annual basis while the Core CPI, which excludes volatile food and energy items, is likely to improve to 1.5% from 1.3% prior. Talking about the monthly figures, the CPI could cut in half from the 0.6% prior to 0.3% during May.

In this regard, analysts at TD Securities said,

We look for UK inflation to edge a bit higher in May, with core CPI pushing up to 1.5% y/y (market forecast 1.5%), and headline CPI up to 1.7% y/y (expected 1.8%). The big picture is what we still don't expect to see the same kind of pick-up in core CPI that we've seen in the US as the UK Covid restrictions continue to ease. Price patterns have been quite different in Europe compared to what we saw in the US, and without the same substantial price falls in the Covid-hit sectors, we don't see any good reason for prices to surge now either.

Deviation impact on GBP/USD

Readers can find FXStreet's proprietary deviation impact map of the event below. As observed, the initial market reaction is likely to remain confined between 15 and 80 pips in deviations up to 2 to -3. The same suggests the importance of the key inflation data for GBP/USD pair traders.

How could it affect GBP/USD?

GBP/USD remains tight-lipped around the monthly low below 1.4100, seesaws near 1.4080 by the press time of pre-London open. Behind the moves could be the mixed sentiment concerning the UK’s unlock and fears of further delay in covid vaccinations to the British population below 18 years. Also contributing to the lackluster moves are Brexit woes and the market’s cautious mood ahead of the US Federal Reserve (Fed) monetary policy meeting.

As the BOE policymakers keep citing increasing odds of the tapering, recently done by Governor Andrew Bailey, firmer CPI readings could help the GBP/USD prices to extend the corrective pullback from a one-month low. However, looming concerns over the UK’s unlock and Brexit joins the pre-Fed trading lull to restrict the cable pair’s reaction to the key inflation measure.

Technically, GBP/USD remains pressured towards a two-month-old support line around 1.4075 but the further downside will be questioned by the 50-day EMA level of 1.4042 and the 1.4000 threshold. Meanwhile, recovery moves need to cross the monthly resistance line near 1.4160 to convince the pair buyers.

Key notes

GBP/USD retreats towards monthly bottom below 1.4100, focus UK CPI, Jerome Powell

GBP/USD Forecast: Pound trading heavily on Brexit jitters

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 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).