Today we are awaiting for UK CPI reading. It will be released at 9:30am GMT. Any deviation from the expected figures has the capacity to move pound significantly, but a negative print could see the most sustained impact. Given the recent dovish tone of the BOE and trimming of inflation expectations, a negative print will add to the sentiment of a rate hike delay into 2017 and pressure the Sterling. A positive print here will still see the GBP supported in the short term.
UK CPI measures the change in the price of goods and services purchased by consumers. CPI is the most important price-related release because it is the key measure the central bank uses to assess inflation. Consumer prices account for a majority of overall inflation. Inflation is important to currency valuation because each central bank has a target inflation range which they attempt to maintain, primarily by adjusting interest rates. A change in interest rates means a change in the yield an investor receives by investing in that currency.
The BOE still plans to hike rates in late 2016 or early 2017, and this gives the currency strength fundamentally, however, just as with the Fed, the BOE cannot hike rates until they see inflation moving higher, towards the 2% target. Until this occurs, rate hikes will continue to be delayed.
Consumer prices were slightly softer than expected in September. A 0.1% monthly drop reduced annual inflation by a tick to -0.1%, its second sub-zero reading since May.
This release was also covered in weekly risk events video. You can watch it here.
Source:: UK CPI Impact on the GBP