GBP slides to $1.30 as UK CPI falls

GBP slides to $1.30 as UK CPI falls

Summary:

  • Today’s data turned out to be much weaker than expected
  • Slower inflation could delay a potential rate hike from the Bank of England
  • As a result, the GBPUSD falls back to 1.3020 from 1.3100 just ahead of the print

Analysis:

U.K. inflation unexpectedly slowed in June, giving respite to Bank of England policy makers concerned that price growth was getting out of hand. The inflation rate slipped to 2.6 percent, the Office for National Statistics said on Tuesday. It’s the first drop in theannual rate since October, and economists had forecast that it would hold at the four-year high of 2.9 percent reached in May.

Motor fuels and recreation items such as games were the main contributors to the lower inflation rate, the report said. Core inflation , which excludes volatile food and energy prices, slipped to 2.4 percent from 2.6 percent in May. Food prices fell 0.2 percent on the month.

UK CPI slowed, but remains in an uptrend since the Brexit vote. What’s more, it’s still close to multi-year highs, which could force the BOE to raise rates. source: Bloomberg

The data weakens arguments for an immediate interest-rate hike that a minority of policy makers supported at the last BOE decision as inflation looked set veer further above the 2percent target. There are also signs economic growth is cooling as consumers, the engine of growth for the past year,start to rein in spending. The BOE announces its next policy decision and publishes new forecasts on August 3. Officials voted 5-3 to keep rates on hold last month and have been drawing the battle lines in recent weeks over whether to stifle rising inflation

As for the GBP, the currency was hit by such weak print. GBPUSD rose above 1.31 minutes ahead of the data, but fell almost 100 pips in the afetrmath of the publication. Looking at the chart we can see that it’s now close to a crucial level of support that served as a long-term resistance. If it’s broken, we could see a test of the mid-term upward trendline. On the other hand, a rebound will confirm strength of the buying side.

 

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