The UK CPIs Overview
The cost of living in the UK as represented by the Consumer Price Index (CPI) for December month is due early on Wednesday at 07:00 GMT. The key inflation data will be important to determine the need for further stimulus amid the third lockdown in the UK. The data will also help foresee comments from the Bank of England (BOE) Governor Andrew Bailey, up for publishing at 17:00 GMT today.
The headline CPI inflation is expected to rise from 0.3% prior to 0.5% on an annual basis. The Core CPI that excludes volatile food and energy items can also follow the suit with market forecasts suggesting 1.3% YoY print versus 1.1% previous readouts. Talking about the monthly figures, the CPI could reverse the previous -0.1% release with +0.2% prints.
In this regard, analysts at Westpac said,
Inflation has been concerningly low ahead of the December CPI, but some price pressures may emerge as the effects of the VAT cut and low energy prices dissipate.
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 pierces 1.3650 while picking up bids to flash 0.15% intraday gains. Although the US dollar weakness can be largely blamed for the pair’s upside momentum, hopes that the covid vaccinations in the UK will help overcome the pandemic seems to have favored the quote’s latest upside momentum.
Given BOE policymakers’ support to further easy money policy, even as UK Chancellor Rishi Sunak seems to have reached the limits of stimulus, any disappointment in the UK CPI data can only offer a knee-jerk reaction while favoring the current upside. It should, however, be noted that major attention will be given to the virus updates and Brexit headlines, not to forget US President-elect Joe Biden’s inauguration for clearer direction.
Technically, 21-day SMA around 1.3590 offers immediate support while the GBP/USD bulls target the monthly top near 1.3710.
Key notes
GBP/USD: Off daily top above 1.3600, eyes UK CPI, Biden’s inaugural ceremony
GBP/USD Forecast: Modest advance as UK-covid situation improves
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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