Summary:
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UK CPI Y/Y: +1.7% vs +1.8% exp. +2.1% prior
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Core reading falls to lowest level since Nov 2016
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GBPUSD dips back below $.12 from 8-week high
After reaching its highest level against the US dollar in 8 weeks yesterday, the pound has pulled back following a lower than expected inflation print. The CPI for August came in at +1.7% Y/Y, below the consensus forecast of +1.9% Y/Y with the core reading also missing expectations for a 1.8% Y/Y increase, rising by +1.5%. This is the lowest core reading since November 2016 and could be seen to raise the chances of a rate cut from the BoE. There’s been a clear trend amongst central banks towards lower interest rates in recent months, but the BoE have yet to follow suit with some data points even suggesting that a tighter monetary policy could be warranted were it not for Brexit uncertainty.
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UK inflation fell further in August with the core CPI measure dipping close to its lowest level in 3 years. Source: XTB Macrobond
However, Brexit uncertainty looks like it’s here to stay for the foreseeable future and further weakness in inflation metrics in the coming months could see calls for Governor Carney and his fellow rate setters to lower the base rate gain prominence - especially given the anaemic growth figures that have seen the UK flirting with a technical recession. The pound has enjoyed a strong run higher of late, with a significant bounce seen after dipping below the $1.20 mark at the beginning of the month. Brexit clearly still looms large over sterling, but unlike a couple of weeks ago it is not the only game in town as far as the pound is concerned. The Fed rate decision this evening could be a major event for the greenback while concerns about short-term funding after the overnight repo rate surged are something to keep an eye on - and any comments on this are worth looking out for.
Has GBPUSD turned a corner? The market recently broke back above the D1 Ichimoku cloud and the prior swing level around 1.2390 now coincides with the top of it. This is the first level of potential support to keep an eye on going forward. Source: xStation
