The latest look at price pressures in the UK has shown a further drop with the consumer price index for November falling to 2.3% Y/Y - its lowest level since March 2017. While this decline was expected it provides further evidence that the spike in inflation caused by the depreciation in the pound following the Brexit referendum has passed through by and large after this metric peaked at 3.1% this time last year. A core reading which strips out volatile aspects like the impact of oil prices also fell, and now stands at 1.8%.
UK inflation has continued to pull back to the BoE target with the CPI Y/Y falling to its lowest level since March 2017. The core reading also declined and this metric is now below the inflation target. Source: XTB Macrobond
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Open account Try demo Download mobile app Download mobile appIn terms of market reaction it has been understandably muted with economic data clearly having taken a back seat as far as driving the pound is concerned of late, with traders far more interested in the latest Brexit developments. On this front, the news flow has eased a little after last week’s bombardment and there is likely to be a bit of a lull before speculation is ramped up once more at the start of next year as the markets start to price in the chances of Theresa May’s deal getting passed.
The pound is little changed on the day against most of its peers with GBPUSD once more testing resistance before pulling back. The 1.2700 level now looks to be a key line in the sand with it not only acting as support previously before lately offering resistance but also because it is now not far from the 21 EMA. For the past month or so the 21 EMA has put a cap on rallies and unless the market can make a decisive push above there then the upside is limited going forward. In terms of market moving events for the pair this evening’s Fed decision could be key with the USD often highly sensitive to change sin interest rates and forward guidance from the US central bank.
Cable remains below the key area around 1.27 which has previously acted as an important swing zone and now also contains the 21 EMA. Price needs to make a clean break above these before a sustained recovery can occur. Source: xStation
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