UK inflation preview: Can a second positive piece of data lift GBP/USD?


  • UK inflation has likely risen in March back to the target. 
  • The BOE is still paralyzed by Brexit but will take note.
  • With Brexit on break, a second consecutive positive number may already lift the pound.

The UK publishes its inflation report on Wednesday, April 17th, at 8:30 GMT. The headline Consumer Price Index (CPI) stood at 1.9% YoY in February, just below the Bank of England's 2% target. Core CPI was just 0.1% behind with 1.8%. Both figures were off the highs. 

Expectations for March stand at a tick higher for both measures: CPI to 2% and Core CPI to 1.9%. The recent pickup in oil prices can explain the higher expectations for the headline, but other reasons are behind higher expectations for the core number.

The BOE would like to raise rates in order to get ahead of the curve on inflation: prevent an overheating. Moreover, wages are outpacing inflation quite significantly, with a rise of 3.5% in February reported just now. 

However, Brexit paralyzes all policymaking in the UK, and this includes the central bank. The Old Lady will not budge until it receives some political clarity. Brexit also paralyzes price reaction to economic figures. The pound moved only temporarily and in a limited scope before the next Brexit-related headline rocked it.

GBP/USD reaction - upside bias

The poor reaction function has not changed in the first post-Halloween extension release. Last week's EU Summit resulted in a long delay of Brexit through the end of October. Nevertheless, the release of the jobs data on Tuesday did not trigger any substantial move. However, the lack of action can also be attributed to the lack of surprise: both wages and the unemployment rate came bang on expectations.

Will the response to inflation be different? There is a good reason to believe it will. In both the employment figures and inflation ones, expectations are for robust numbers. So, even if there are no surprises, the accumulation of upbeat figures could trigger a positive reaction in GBP/USD

It is also important to note that markets are calm, and the US Dollar does not enjoy safe-haven flows. On this background, the bias is in favor of rises in cable.

The pound may also dismiss a small miss in the figures. It would probably take a deceleration in inflation, from 1.9% to 1.8% on the headline to send Sterling lower.

Conclusion

UK inflation is forecast to have accelerated in March. The accumulation of upbeat figures amid the Brexit calm could trigger an upside move.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Analysis feed

Latest Forex Analysis

Editors’ Picks

EUR/USD rebounds after dismal US PMIs

EUR/USD is trading closer to 1.0850, rising in response to weak US PMIs, with the services one pointing to contraction. Earlier, German Manufacturing PMI beat estimates. 

EUR/USD News

GBP/USD advances to 1.2950 after US data

GBP/USD is trading around 1.2950, taking advantage of US weakness stemming from a downfall in Markit's Services PMI in the US. In Britain, the Manufacturing PMI exceeded estimates. 

GBP/USD News

Top 3 Price Prediction Bitcoin, Ethereum, Ripple: Consolidation process underway

The Crypto board continues to be immersed in an emotional leg-breaking, consistently punishing the emotional state of the traders with its continuous changes of direction.

Read more

XAU/USD unstoppable, breaks to fresh 2020 highs, approaching $1650/oz

XAU/USD is trading in an uptrend above its main daily simple moving averages (SMAs) while breaking above a bull channel. Gold is printing fresh 2020 highs hitting $1646.64 per ounce on an intraday basis.  

Gold News

FXStreet launches Real-Time Trading Signals

FXStreet Signals offers access to explanatory live webinars, real-time notifications when signals are triggered and exclusive membership to the company’s Telegram group, where users get direct guidance by our analysts and get room to discuss and interact.

More info

Forex Majors

Cryptocurrencies

Signatures