- UK CPI (Consumer Price Index) rose by 3.2% in March compared to the previous year.
- This was slightly higher than the expected increase of 3.1%.
- Core CPI, excluding volatile items like food and energy, grew by 4.2% year-on-year in March.
- This was a bit lower than February’s increase but still above expectations.
- UK’s March Services CPI rose by 6.0% compared to the previous year, slightly lower than February.
- On a monthly basis, the UK CPI remained stable, with a 0.6% increase in March, the same as February.
The GBP/USD pair initially surged to test the 1.2450 mark following the release of the UK CPI inflation data. However, it quickly retraced back to around 1.2440 and is currently fluctuating around that level. As of now, the pair is trading 0.12% higher compared to the previous day.
- UK Consumer Price Index (CPI) data to be released by the Office for National Statistics on Wednesday.
- Expected easing in both headline and core annual inflation for March in the UK.
- The CPI report could influence the Bank of England (BoE) to consider an interest rate cut.
- The Pound Sterling’s value may react significantly to the CPI data release.
- Investors are keenly observing for any hints indicating an earlier-than-expected interest rate cut by the BoE.
| Headline CPI Expectation: | UK Consumer Price Index (CPI) forecasted to increase by 3.1% in March, down from 3.4% in February but still above the Bank of England’s 2.0% target. |
| Core CPI Projection | Core CPI inflation expected to ease to 4.1% year-on-year in March from 4.5% in February, marking a two-year low. |
| Monthly CPI Growth: | British monthly CPI rose by 0.6% in the previous month. |
| Factors Affecting Inflation | Weaker growth in food prices likely contributing to easing inflation, according to the British Retail Consortium (BRC) and NielsenIQ. |
| Food Price Trends: | Food inflation fell to 3.7% from 5.0%, while shop prices rose at an annual rate of 1.3% in March, the slowest pace since December 2021. |
| Wage Inflation | Average Earnings excluding Bonus rose by 6.0% year-on-year in February, slightly slower than January’s 6.1% growth. |
| Services Inflation Expectation | Economists anticipate services inflation to remain elevated at 5.8% year-on-year, though slightly lower than February’s 6.1% increase, potentially impacting the Bank of England’s policy decisions. |
| Market Expectations | Markets are pricing in the first quarter-point rate reduction by the Bank of England by September, with a further easing of 49 basis points expected in 2024. |
| BoE Policy Outlook | The Bank of England adopted a dovish stance at its March policy meeting, with members Catherine Mann and Jonathan Haskel joining an 8-1 majority to keep rates unchanged at 5.25%. |
| Comments from BRC Chief Executive | : Helen Dickinson mentioned that despite some Easter treats being more expensive due to global cocoa and sugar prices, retailers provided discounts on popular chocolates, leading to price falls. |
| Non-Food Price Trends | Prices of electricals, clothing, and footwear fell as retailers increased promotions to boost consumer spending |
| Analyst Predictions | Analysts at TD Securities anticipate headline inflation to slightly undershoot the MPC’s forecast in March, with services inflation expected to be in line at 5.8%, while forecasting headline inflation to remain below target until the end of the year |
The UK CPI report is scheduled for release on Wednesday at 06:00 GMT. This event could have significant implications for GBP/USD trading. Here’s how:
- Timing of CPI Release: The CPI data will be released at 06:00 GMT on Wednesday.
- GBP/USD Dynamics: The Pound Sterling is attempting a modest recovery against the US Dollar in anticipation of the CPI report. Meanwhile, the US Dollar Index is consolidating near five-month highs, above 106.00.
- Impact of CPI Data: If the CPI data show higher-than-expected inflation figures, it could delay market expectations of a September rate cut by the Bank of England (BoE). This scenario could provide a boost to the Pound Sterling, potentially leading to a sustained rise towards the 1.2600 level in GBP/USD.
- Downside Risks for GBP/USD: Conversely, if the CPI data reveal a significant cooling off in services inflation, indicating that the BoE might not wait until September to adjust its policy, GBP/USD could resume its downtrend towards the 1.2375 level.
- Technical Analysis: According to Dhwani Mehta, the Asian Session Lead Analyst at FXStreet, GBP/USD closed below the static support of 1.2450, signaling bearish momentum. The 14-day Relative Strength Index (RSI) suggests further downside potential for the Pound Sterling.
- Possible Scenarios: A decisive break below the 1.2400 threshold could intensify selling pressure, pushing GBP/USD towards the 1.2375 demand area. On the other hand, any corrective upside movement may face resistance at the 1.2500 level, with a meaningful recovery potential towards the 200-day Simple Moving Average (SMA) at 1.2579.
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