The UK CPIs Overview

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

The headline CPI inflation is expected to rise to 3.9% YoY versus 3.1% prior while the Core CPI, which excludes volatile food and energy items, is likely to improve to 3.0% from 2.9% in October. Talking about the monthly figures, the CPI could jump to 0.8% MoM from 0.3% marked in September.

It’s worth noting that the supply crunch also highlights the Producer Price Index (PPI) for immediate GBP/USD direction. That being said, the PPI Core Output YoY may jump from 6.5% to 5.9% on a non-seasonally adjusted basis whereas the monthly prints can rise to 0.7% from 0.5% prior. Furthermore, the Retail Price Index (RPI) is also on the table for release, expected 5.7% YoY versus 4.9% prior.

In this regard, analysts at TD Securities said,

A partial unwind of last year’s VAT tax in the hospitality industry, coupled with a 12% increase in utility prices by Ofgem, and the impact of fuel shortages likely led to a sharp rise in inflation in the month. We look for a full percentage point rise in headline inflation to 4.1% y/y (expected: 3.9%) with core inflation reaching 3.1% (market forecast: 3.1%), thus extending the rapid increase in UK inflation from the beginning of the year. Inflation is only heading higher from here, and the risks to this print are to the upside.

How could it affect GBP/USD?

GBP/USD consolidates intraday losses around 1.3420, down 0.03% on a day, heading into Wednesday’s London open.

In doing so, the cable pair struggles to overcome the broad US dollar strength, backed by the firmer US Treasury yields. Hopes of overcoming the deadlock on the Northern Ireland (NI) protocol and hawkish bets on the Bank of England’s rate hike concerns favor the GBP/USD buyers of late. Though, a comparatively higher emphasis on the Fed rate hike and fresh covid woes in England test the cable’s upside momentum.

That said, today’s inflation numbers could help the BOE hawks to reiterate their policy adjustment demands. The latest comments from the BOE Governor Andrew Bailey also hint at the higher interest rate should the price pressure mount. BOE Governor Bailey speaking before the UK Parliament Treasury Select Committee TSC, said that all future BoE policy meetings are now “in play” for a rate rise.

Hence, a firmer CPI print should recall the GBP/USD buyers but daily close past the monthly resistance line, around 1.3445 by the press time, becomes necessary for the pair to ignore odds of visiting the yearly low surrounding 1.3350.

Key notes

GBP/USD drops back towards 1.3400 on Brexit woes, UK inflation eyed

UK CPI Preview: Buy the rumor, sell the fact? Three scenarios for GBP/USD

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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