November 20, 2024
- The United Kingdom’s Office for National Statistics will release the CPI report on Wednesday.
- Annual UK headline CPI inflation is expected to rise in October, with the core figure expected to decline slightly.
- UK CPI data could signal a pause in BoE December interest rate cuts, fueling the pound sterling sell-off.
United Kingdom (UK) Consumer Price Index (CPI) data for October will be released by the Office for National Statistics (ONS) at 07:00 GMT on Wednesday.
UK CPI Inflation Report May Give Fresh Indication of Bank of England’s (BoE) Interest Rate Move rateWhich is likely to have a powerful effect pound Sterling
What to expect from the next UK inflation report?
UK Consumer Price Index It is set to grow at a 2.2% annual pace in October after 1.7% growth in September, returning above the BoE’s 2.0% target.
Core CPI inflation is expected to ease slightly to 3.1% YoY in October compared to the 3.2% reading reported in September.
According to a Bloomberg survey of economists, official data will show that services inflation eased slightly to 4.8% in October from 4.9% in the previous month.
The BoE estimated annual headline CPI at 2.2% and services CPI at 5.0% in October.
Meanwhile, British monthly CPI rose 0.5% over the same period, compared to a previous reading of 0%.
Previewing UK inflation data, Societe Generale analysts noted: “We expect base effects and higher utility prices to push headline inflation above its 2.0% target in October to 2.2% year-over-year (YoY), from 1.7% YoY. September More importantly, we see services inflation picking up 0.1 percentage point (pp) to 5% YoY, though risks are tilted to the downside.”
How will UK Consumer Price Index report affect GBP/USD?
Following its decision on 7 November to cut rates by 25 basis points (bps) to 4.75%, the BoE maintained its cautious language on future interest rate cuts. In its policy statement, the central bank reiterated that sustainable inflation must remain “constrained for a sufficiently long period” to return to the 2.0% target.
The BoE predicted that UK Finance Minister Rachel Reeves’ Autumn Budget 2024 would increase the size of GDP while adding to inflationary pressures.
Testifying before the UK Parliament’s Treasury Select Committee (TSC) on Tuesday, Governor Andrew Bailey said the Labor government’s tax hikes bolstered the central bank’s growing approach to easing interest rates.
Against this backdrop, UK CPI data is key to determining whether the BoE will halt its easing trajectory after its second rate cut since 2020 earlier this month.
An expected headline and key inflation data will raise bets for a BoE break, lifting the pound sterling. In this case, GBP/USD could start a sustained recovery from the six-week trough. On the other hand, the expected inflation reading could add to the pain in Pound Sterling, which could push GBP/USD towards 1.2500.
Dhwani Mehta, Chief Analyst, Asian Session FXStreetA brief technical proposal perspective For the main and explains: “GBP/USD retains its recovery mode in UK CPI data release countdown. However, the 14-day Relative Strength Index (RSI) remains below 50, suggesting that downside risks remain intact. Further, the 21-day simple moving average (SMA) shows a drop above the 200-day SMA, which represents an impending death cross on the daily time frame and adds credence to bearish prospects.”
Dhwani added: “The pair may extend the recovery towards 1.2750 emotional resistance, above which the 200-day SMA at 1.2820 will be challenged. The next upside target is seen at 21-day SMA 1.2858. Conversely, immediate support is seen at the multi-month low of 1.2597, below which the 1.2500 round level could be tested.”
Economic indicators
Consumer Price Index (YoY)
United Kingdom (UK) Consumer Price Index (CPI), published by the Office for National Statistics On a monthly basis, a measure of consumer price inflation – the rate at which the prices of goods and services purchased by households increase or decrease – is produced for international standards. It is a measure of inflation used in government targeting. The YoY reading compares the price of the reference month with the price of a year ago. Generally, higher readings for the Pound Sterling (GBP) are seen as bullish, while lower readings are seen as bearish.
Inflation FAQs
Inflation measures the increase in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes volatile components such as food and fuel that can fluctuate due to geopolitical and seasonal factors. Core inflation is the figure economists focus on and the level targeted by central banks, which is mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures changes in the prices of a basket of goods and services over a period of time. It is usually expressed as percentage change on month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks because it excludes volatile food and fuel inputs When core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Because higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation declines.
Although it may seem counter-intuitive, high inflation in a country increases the value of its currency and vice versa for low inflation. This is because the central bank will usually raise interest rates to combat high inflation, which attracts more global capital flows from investors looking for a profitable place to put their money.
Previously, gold investors flocked to the asset during times of high inflation because it stored its value, and while investors would still buy gold for its safe-haven properties during times of extreme market volatility, most of the time it doesn’t. . Because when inflation is high, central banks raise interest rates to counter it. High interest rates are negative for gold because they increase the opportunity cost of holding gold or holding money in a cash deposit account as opposed to interest-bearing assets. On the flip side, lower inflation tends to be positive for gold as it lowers interest rates, making the precious metal a more viable investment option.
