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 July month is due early on Wednesday at 06:00 GMT. Given the recent escalation in the price data during the last five months, coupled with the Bank of England’s (BOE) emphasis on CPI to dial back the bond purchase, today’s data will be watched closely by the GBP/USD traders.

It should be noted, however, that the recent high covid numbers from the UK and the presence of the US Federal Open Market Committee (FOMC) Minutes dim the importance of the event a bit.

The headline CPI inflation is expected to ease from 2.5% previous readouts to 2.2% on an annual basis while the Core CPI, which excludes volatile food and energy items, is likely to follow the suit with 2.2% figures versus 2.3% prior. Talking about the monthly figures, the CPI could drop to 0.3% MoM versus 0.5% marked in June.

In this regard, analysts at TD Securities said,

We look for UK inflation to ease back a bit in July, both on a core and headline basis. We expect core CPI to recede to 2.0% y/y (market forecast 2.0%), though with some continued reopening inflation keeping the SA m/m rate higher than normal. For headline CPI we look for a decline to 2.2% y/y (consensus 2.3%), before bouncing above 3% in August on base effects from last year's Eat Out to Help Out Programme, and then closer to 4% by year-end after a big jump in electricity prices in October.

How could it affect GBP/USD?

GBP/USD consolidates the heaviest fall in five months amid a US dollar pullback around 1.3755, up 0.10% intraday, heading into Wednesday’s London open. The cable pair’s corrective pullback could be linked to the softer US Dollar Index (DXY) and hopes that the recent vaccine optimism in the UK could help battle the Delta covid variant woes.

With the BOE policymakers’ emphasis to term the spike in inflation data as transitory, any jump in the CPI may only knee-jerk reactions from the GBP/USD traders. Also challenging the pair’s upside moves, in the case of strong inflation data, are the risk-off mood and the UK’s covid woes. Hence, a negative surprise will be more welcome than the otherwise.

Technically, early July’s low near 1.3730 tests the GBP/USD pair’s short-term downside ahead of six-month-old horizontal support around 1.3566–72. Alternatively, a daily closing below 200-DMA, around 1.3785 keeps bears hopeful.

Key notes

GBP/USD steadies near 1.3750 after the heaviest fall since June, UK CPI, FOMC Minutes eyed

GBP/USD Forecast: July monthly low at 1.3571 at sight

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).