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).
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. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD loses ground due to the absence of a hawkish RBA
The Australian Dollar has plunged following the Reserve Bank of Australia's decision to maintain its interest rate at 4.35% on Tuesday. Investors sentiment leaned toward a potentially more hawkish stance from the RBA, particularly after last week's inflation data surpassed expectations.
EUR/USD edges lower to near 1.0750 after hawkish remarks from a Fed official
EUR/USD extends its losses for the second successive session, trading around 1.0750 during the Asian session on Wednesday. The US Dollar gains ground due to the expectations of the Federal Reserve’s prolonging higher interest rates.
Gold price remains on the defensive on a firmer US Dollar
Gold price attracts some sellers on the firmer US Dollar during the Asian trading hours on Wednesday. The hawkish remarks from Federal Reserve officials dampen hopes for potential interest rate cuts in 2024 despite weaker-than-expected US employment reports in April.
FTX files consensus-based plan of reorganization, awaits bankruptcy court approval
FTX has filed a consensus-based plan for its reorganization, coming almost two years after the now defunct FTX filed for Chapter 11 Bankruptcy Protection in the District of Delaware.
Living vicariously through rate cut expectations
U.S. stock indexes made gains on Tuesday as concerns about an overheating U.S. economy ease, particularly with incoming economic reports showing data surprises at their most negative levels since February of last year.