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

The UK CPIs Overview

The cost of living in the UK as represented by the Consumer Price Index (CPI) for September month is due early on Wednesday at 06:00 GMT.

Given the recently released unimpressive employment data, coupled with the Bank of England’s (BOE) readiness for Quantitative Tightening (QT), today’s British inflation data will be watched closely by the GBP/USD traders.

The headline CPI inflation is expected to refresh a 30-year high with a 10.0% YoY figure versus 9.9% prior while the Core CPI, which excludes volatile food and energy items, is likely to improve a bit to 6.4% YoY during the stated month, from 6.3% previous readouts. Talking about the monthly figures, the CPI could ease to 0.4% versus 0.5% prior.

It’s worth noting that the recent pressure on wage prices and upbeat jobs report 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 ease to 12.7% from 13.7% on a non-seasonally adjusted basis whereas the monthly prints may rise to 0.9% versus 0.3% prior. Furthermore, the Retail Price Index (RPI) is also on the table for release, expected to ease to 0.5% on MoM from 0.6% previous reading while likely keeping the 12.3% YoY figures unchanged.

In this regard, Westpac said,

The intensity of energy inflation and underlying breadth of other inflationary pressures will again feature prominently in UK September CPI. Consensus is 10.0%yr overall, 6.4%yr core rate, both up 0.1ppt on August. 

On the same line, FXStreet’s Yohay Elam says,

High prices are set to trigger a big rate hike from the Bank of England, probably 75 bps on November 3. However, it could be higher if the government fails to get its act together and cut costs. 

Deviation impact on GBP/USD

Readers can find FXStreet's proprietary deviation impact map of the event below. As observed the reaction is likely to remain confined around 20-pips in deviations up to + or -2, although in some cases, if notable enough, a deviation can fuel movements over 60-70 pips.

How could it affect GBP/USD?

GBP/USD retreats from a five-week-old descending resistance line near 1.1350 ahead of the key UK inflation numbers, near 1.1330 at the laetst. In doing so, the Cable pair portrays the market’s indecision amid a lack of major data/events, as well as anxiety before the crucial CPI number.

Although the BOE has already confirmed its QT starting from November 01, today’s inflation numbers will be important as UK PM Liz Truss’ leadership keeps pushing the “Old Lady”, as the British central bank is informally known, towards faster rate hikes. It should be noted that the political jitters surrounding the UK and the market’s indecision amid a light calendar elsewhere also challenge the UK CPI’s importance for the GBP/USD traders.

Should the inflation numbers manage to stay firmer on the MoM, in addition to posting the multi-year high YoY numbers, GBP/USD is likely to cross the immediate trend line resistance and rush towards the monthly high near 1.1500. Alternatively, pullback moves may have another chance of reversing amid the market’s optimism and the UK’s political drama.

Technically, the 50-DMA level near 1.1470 adds to the upside filters, in addition to the aforementioned resistance line near 1.1250. Meanwhile, a convergence of the 21-DMA and a three-week-long ascending trend line highlights 1.1140 as the short-term key resistance.

Key notes

Where inflation stands and what to expect, overview of 8 major currencies

GBP/USD eyes momentum above 1.1360 amid soaring market mood, UK CPI in focus

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).