UK inflation slid from 2% to 1.9% in January. Also core CPI fell from 1.7% to 1.7% to 1.6%. This is below expectations. The headline Consumer Price Index (CPI) was expected to remain unchanged at 2%. The Retail Price Index was predicted to stand at 2.7% and it was the only positive surprise with 2.8%. Core CPI was expected to rise from 1.7% to 1.9% and PPI Input to drop by 0.4% month over month but it dropped 0.9%. The lower inflation rate gives Carney more flexibility with the rates: more flexibility with supporting the economy and the fragile recovery.
GBP/USD was trading lower towards the release: at 1.6684, down from 4 year highs seen early in the week. The pair is now at 1.6660.
Some more data:
- CPI m/m dropped 0.6% instead of 0.5% expected.
- DCLG HPI y/y rose 5.5%, below 5.8% expected.
- PPI Output m/m rose 0.3%, above 0.1% expected
Additional figures are in the forex live calendar.
The pound enjoyed the new forward guidance by Carney, which conveyed an earlier rate hike than earlier thought. The upwards move of the pound was then extended with a move above the May 2011 high of 1.6747. Cable broke above 1.68, but fell back at the same speed.
Tomorrow is also an important day for the pound, with the simultaneous release of both the meeting minutes of the MPC and employment numbers.
Support awaits at 1.6668 followed by 1.6618 and resistance at 1.6747. For more, see the GBPUSD forecast.
