Contrary to expectations, inflation in the UK jumps and is at 1.9%, almost at target. Core CPI is at 2%, RPI at 2.6% and the HPI at 10.5%. All figures are above expectations. The UK was expected to report headline CPI of 1.6% in June, stronger than the disappointing 1.5% in May. RPI was expected to tick up to 2.5%, Core CPI from 1.6% to 1.7% and the House Price Index to rise from 9.9% to 10.2%. All figures are year over year.
GBP/USD remained on low ground towards the publication, trading just above 1.7060. This is a 70 pip reaction. With headline inflation nearly on target and an improvement in employment, a rate hike is coming sooner than later, probably within 2014.
Update: GBP/USD is already above 1.7140. EUR/GBP is under 0.7940. The pound is also strong against other currencies.
Cable suffered a significant drop yesterday, probably in anticipation of a weak inflation number and towards the release of employment data yesterday. Here is the preview: how to trade the UK CPI with GBP/USD.
The only figures that are below expectations are the producer prices. But these are volatile and carry less weight.
After trading above 1.7170, pound/dollar traded in a range above 1.71 for quite some time. This was broken only yesterday.
1.70 is the obvious support line under 1.7060, while 1.71 is weak resistance. In EUR/GBP, the obvious line is 0.80. In this cross, a lot depends on pound as the euro remains steady.
For more, see the British pound prediction.
