When is the UK inflation and how could it affect GBP/USD?

Anil Panchal FXStreet

The UK CPIs Overview

The cost of living in the UK as represented by the Consumer Price Index (CPI) for January month is due early on Wednesday at 07:00 GMT. Given the recently strong employment data, coupled with the push for the Bank of England (BOE) rate hikes, today’s inflation numbers will be watched closely by the GBP/USD traders.

The headline CPI inflation is expected to remain unchanged with 5.4% YoY figures for January while the Core CPI, which excludes volatile food and energy items, is likely to rise a bit to 4.3% YoY during the stated month, from 4.2% previous readouts. Talking about the monthly figures, the CPI could ease to drop to -0.4% versus +0.5% prior.

It’s worth noting that the recent pressure on wage prices and a light workforce also highlights the Producer Price Index (PPI) as an important catalyst for the immediate GBP/USD direction. That being said, the PPI Core Output YoY may rise from 8.7% to 9.0% on a non-seasonally adjusted basis whereas the monthly prints may improve to 0.7% versus 0.5% prior. Furthermore, the Retail Price Index (RPI) is also on the table for release, expected to remain intact at 7.5% YoY, likely declining to -0.4% MoM in January versus 1.1% previous readings.

In this regard, analysts at TD Securities said,

In any case, the BoE is set to pay close attention to this print, and while an upside surprise could push them to turn more hawkish, the Bank will likely not react too much to a downside surprise as inflation is set to peak above 7% in April when the temporary VAT decrease is removed and the increased Ofgem price cap comes into effect.

How could it affect GBP/USD?

GBP/USD remains sidelined around 1.3540 during Wednesday’s Asian session, after bouncing off a two-week-low the previous day. The pair’s latest lackluster performance could be linked to the market’s anxiety over the Russia-Ukraine issue, as well as cautious sentiment ahead of the key UK data.

It’s worth noting that mixed updates concerning Brexit and UK politics also play their roles to challenge the cable pair’s latest moves.

That said, an escalating pressure on the global central banks to tame inflation signals the GBP/USD pair’s upside should the scheduled data portray upbeat figures. It’s worth noting that the price pressure jumped to a 30-year high during the latest readings and any more advances won’t hesitate to offer another rate hike in March, as widely anticipated.

In this regard, FXStreet’s Dhwani Mehta says

Should UK CPI meet estimates, GBP/USD may witness a temporary advance, which could quickly die down. In case, the reading disappoints with sub-5% print, then it could pour cold water on BOE’s tightening plans and knock down the currency pair towards the recent range lows near 1.3490.

Key notes

GBP/USD keeps bounce off two-week low around 1.3550 ahead of UK inflation

UK Inflation Preview: December’s 30-year top appears at risk; pound has room to rise

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).

Author

Anil Panchal

FXStreet

Anil Panchal has nearly 15 years of experience in tracking financial markets. With a keen interest in macroeconomics, Anil aptly tracks global news/updates and stays well-informed about the global financial moves and their implications.

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