When are the UK CPIs and how could they affect GBP/USD?
The UK CPIs Overview
The cost of living in the UK as represented by the Consumer Price Index (CPI) for September month is due early on Wednesday at 06:00 GMT. The key inflation data will pave the way for market forecasts despite the current Brexit drama and the US stimulus headlines that dim the charm of the crucial economic releases.
The headline CPI inflation is expected to recover from 0.2% prior to 0.5% on an annual basis. The Core CPI that excludes volatile food and energy items can also follow the suit with market forecasts suggesting 1.3% YoY print versus 0.9% previous readouts. Talking about the monthly figures, the CPI could reverse the previous -0.4% figures with a +0.5% level.
In this regard, analysts at TD Securities said,
We look for core CPI to rebound in September as the government's EOHO incentives came to an end, rising from 0.9% y/y to 1.3% y/y (market forecast 1.3%). Outside of that rebound we expect core trends to remain quite subdued, reflecting the downside surprises we've seen across most of Europe. This should leave headline CPI rebounding to about 0.6% y/y (market forecast 0.6%), which is above the BoE's near-term forecasts from the August MPR. However, the BoE will continue to be focused on the impact of the worsening pandemic and second-wave restrictions, and what it means for economic activity and medium-term inflation, rather than current inflation prints.
Deviation impact on GBP/USD
Readers can find FXStreet's proprietary deviation impact map of the event below. As observed, the initial market reaction is likely to remain confined between 15 and 80 pips in deviations up to 2 to -3. The same suggests the importance of the key inflation data for GBP/USD pair traders.
How could it affect GBP/USD?
By the press time of pre-London open on Wednesday, GBP/USD cheers the broad US dollar weakness, amid risk-on mood, to mark 0.23% intraday gains while taking the bids near 1.2980.
The pair has mainly cheered the US dollar weakness as the DXY lacks safe-haven buying amid notable progress in the American coronavirus (COVID-19) relief package talks. The US dollar index (DXY) drops the lowest since September 21, down 0.20% intraday to 92.90, by press time. Also favoring the GBP/USD buyers are speculations that the European Union’s (EU) recently soft stand cuts the odds for no-deal Brexit.
It should also be noted that recently bearish statements from the Bank of England (BOE) policymakers also highlight the importance of today’s inflation data. Should the prices offer a surprise drop, the BOE’s bearish bias may get additional support and can weigh on the quote for the short-term. Though, the actual impact could also depend upon how weak the US dollar is at the time.
Technically, GBP/USD remains positive for the fourth day in a row while keeping Monday’s upside break of the 50-day EMA. As a result, buyers can aim for the falling resistance line from September 01, at 1.2995 now. Meanwhile, a one-month-long support line near 1.2890 offers an extra back-up to the GBP/USD bulls even if they fail to bounce off the 50-day EMA level of 1.2935.
Key notes
GBP/USD Forecast: Waiting for a clearer Brexit picture
GBP/USD Price Analysis: Stays above 50-day EMA while attacking 1.2950
About the UK CPIs
The Consumer Price Index released by the Office for National Statistics is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchasing power of GBP is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as positive (or bullish) for the GBP, while a low reading is seen as negative (or Bearish).