- The UK’s Office for National Statistics will publish the CPI report on Wednesday.
- UK annual headline and core inflation are expected to soften in September.
- UK CPI data could seal a BoE interest rate cut in November, a scenario that would weigh on the Pound.
The UK’s Office for National Statistics (ONS) will publish the long-awaited Consumer Price Index (CPI) data for September on Wednesday at 06:00 GMT.
The UK CPI inflation report could confirm expectations of a 25 basis point (bps) interest rate cut by the Bank of England (BoE) in November, injecting a fresh wave of volatility into the British pound.
What to expect from the next UK inflation report?
The UK’s annual Consumer Price Index is likely to rise by 1.9% in September, slowing sharply from 2.2% growth in August, while falling back below the BoE’s 2.0% target .
Core CPI inflation is expected to soften to 3.4% year-on-year in September from 3.6% in August.
Official data is expected to show that services inflation fell to 5.2% in September from 5.6% the previous month, according to a Bloomberg survey of economists.
The BoE projected the annual headline CPI at 2.1% and the services CPI at 5.5% for September.
Meanwhile, Britain’s monthly CPI is forecast to rise 0.2% over the same period, up from a previous rise of 0.3%.
Previewing UK inflation data, analysts at TD Securities (TDS) noted: “We expect UK inflation to continue its steady downward march. But rapidly falling energy prices continue to strongly distort headline figure, and services inflation is likely to remain above 5.0% year-on-year (TDS: 5.2%, mkt: 5.3%), leaving the core well above a range with the make the MPC feel comfortable.”
“Hotel and airfare prices remain key sources of volatility for the month,” TDS analysts said.
How will the UK Consumer Price Index report affect GBP/USD?
Ahead of the UK CPI risk event, Sterling traders weigh the odds of a BoE rate cut next month, especially after mixed messages from BoE policymakers in early October .
BoE Chief Economist Huw Pill said there are “ample reasons for caution in assessing the dissipation of persistent inflation,” adding that the “need for such caution points to a gradual withdrawal of policy tightening.” monetary.” A day before Pill’s appearance, Governor Andrew Bailey noted that the UK central bank “might become a little more activist on rate cuts if there is more good news on inflation.”
Therefore, the UK CPI data could help confirm whether the BoE will resume its rate cut cycle after pausing in September.
An upside surprise in headline and core inflation data would likely dampen market expectations of a rate cut next month, lifting the British pound. In that case, GBP/USD could stage a decisive comeback from multi-week lows.
Conversely, the GBP/USD bearish trend could extend if the UK CPI readings meet forecasts or are softer than expected. Thus, the UK central bank’s progress on disinflation could confirm another rate cut in November, throwing the British Pound under the bus.
Dhwani Mehta, Lead Asian Session Analyst at FXStreet, offers a brief technical outlook for the pair and explains: “GBP/USD has entered a bearish consolidation mode in the countdown to the CPI data release. “The 14-day Relative Strength Index (RSI) remains near 40, suggesting further losses are ahead.”
Dhwani adds: “The pair needs to find acceptance above the 50-day SMA at 1.3115 on a daily close to negate the short-term bearish bias. The next upside targets are seen at the 4-day high. October at 1.3175 and the 21-day SMA at 1.3215. Alternatively, immediate support lines up at the 100-day SMA at 1.2950, ​​below which the March 8 high at 1.2894 could be tested.”
economic indicator
Consumer Price Index (YoY)
The IPC publishes it National Statistics and measures the change in prices of a basket of goods and services purchased by households for consumption. The CPI is the main indicator to measure inflation and changes in consumption trends. A reading higher than expectations is bullish for the pound, while a reading lower is bearish.
Next post:
Wed Oct 16, 2024 06:00
Frequency:
Monthly
Dear:
1.9%
Previous:
2.2%
Fountain:
Office for National Statistics
The Bank of England is tasked with keeping inflation, measured by the main Consumer Price Index (CPI), at around 2%, which gives the monthly publication its importance. A rise in inflation means an increasingly rapid rise in interest rates or a reduction in bond purchases by the BOE, which means squeezing the supply of pounds. On the contrary, a drop in the pace of price increases indicates a more flexible monetary policy. A higher than expected result tends to be bullish for the GBP.
Inflation FAQs
Inflation measures the rise in prices of a representative basket of goods and services. General inflation is usually expressed as a month-on-month and year-on-year percentage change. Core inflation excludes more volatile items, such as food and fuel, which can fluctuate due to geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the target level of central banks, which are mandated to keep inflation at a manageable level, typically around 2%.
The Consumer Price Index (CPI) measures the variation in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage of inter-monthly and inter-annual variation. Core CPI is the target of central banks as it excludes food and fuel volatility. When the underlying CPI exceeds 2%, interest rates usually rise, and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually translates into a stronger currency. The opposite occurs when inflation falls.
Although it may seem counterintuitive, high inflation in a country drives up the value of its currency and vice versa in the case of lower inflation. This is because the central bank will typically raise interest rates to combat higher inflation, attracting more global capital inflows from investors looking for a lucrative place to park their money.
Gold was once the go-to asset for investors during times of high inflation because it preserved its value, and while investors often continue to purchase gold for its safe haven properties during times of extreme market turmoil, this is not the case. most of the time. This is because when inflation is high, central banks raise interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity cost of holding Gold versus an interest-bearing asset or placing money in a cash deposit account. On the contrary, lower inflation tends to be positive for Gold, as it reduces interest rates, making the shiny metal a more viable investment alternative.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
