Rising U.K. Headline & Core Inflation To Fuel GBP/USD Rebound

Trading the News: U.K. Consumer Price Index (CPI)

A further pickup in the U.K.’s Consumer Price Index (CPI) may fuel a larger recovery in GBP/USD as it puts increased pressure on the Bank of England (BoE) to move away from its highly accommodative policy stance.

What’s Expected:

 

Why Is This Event Important:

Heightening price pressures in the U.K. may push the Monetary Policy Committee (MPC) to adopt a more hawkish outlook as board member Kristen Forbes warns the central bank may have to act on the inflation-overshoot ‘even if it means reversing recent adjustments.’ In turn, Governor Mark Carney and Co. may continue to change their tune over the coming months, but it seems as though the central bank is in no rush to move away from its easing-cycle as officials reiterate ‘monetary policy can respond, in either direction, to changes to the economic outlook as they unfold to ensure a sustainable return of inflation to the 2% target.’

Expectations: Bullish Argument/Scenario

The pickup in private-sector activity accompanied by the ongoing improvement in labor market dynamics may generate a stronger-than-expected CPI print, and another expansion in the headline as well as core rate of inflation may spark a bullish reaction in sterling as it boosts interest rate expectations.

Risk: Bearish Argument/Scenario