The UK CPIs Overview
The cost of living in the UK as represented by the Consumer Price Index (CPI) for August month is due early on Wednesday at 06:00 GMT. The key inflation data will pave the way for market forecasts concerning the “Super Thursday” and hence become even more important than the otherwise case. However, the current Brexit drama and the pre-Fed trading lull may dim the charm of the crucial economic releases.
The headline CPI inflation is expected to recede from 1.0% prior to 0.0% on an annual basis. The Core CPI that excludes volatile food and energy items can also follow the suit with market forecasts suggesting 0.6% YoY print versus 1.8% previous readouts. Talking about the monthly figures, the CPI could drop to -0.6% from +0.4%.
In this regard, analysts at TD Securities said,
UK inflation is set to fall sharply in August due to a number of downside forces, including the VAT cut on the hospitality industry in late-July, the discounting from the Eat Out to Help Out scheme, and a failure of clothing/footwear prices to rebound due to the lack of discounting in July. The error bands are especially wide on determining how much of the VAT cut ultimately passed through to consumers, but we estimate that core CPI slipped to 0.4% y/y (market forecast 0.5%), which would be its lowest print since 2001. That should push headline CPI down to about -0.1% y/y (expected 0.0%), just into negative territory.
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?
By the press time of pre-London open on Wednesday, GBP/USD stays mildly bid while piercing 1.2900. In doing so, the Cable prints a three-day winning streak while extending pullback from a seven-week low flashed on Friday.
The pair has mainly cheered the US dollar weakness as the DXY fails to keep the previous day’s recovery moves and attacks 93.00 by the press time. Also favoring the GBP/USD buyers are speculations, as conveyed by Reuters, UK Express and Telegraph, concerning the British push to break the Brexit deadlock while easing stance on fisheries. It should also be noted that recently neutral statements from the Bank of England (BOE) policymakers also keep the Cable buyers hopeful ahead of tomorrow’s key monetary policy meeting and Quarterly Inflation Report (QIR). As a result, today’s inflation data becomes the key and hence any surprise positive outcome can strengthen the pair while the actual readings near the expected downbeat figures may print short-term declines of the quote.
Technically, the pair’s sustained trading beyond the 200-day EMA level of 1.2753 enables the bulls to target the 50-day EMA, currently around 1.2965. Though, the August month’s low near 1.2980 and the 1.3000 threshold can question the pair’s further upside.
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).
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