UK Inflation Hits Fresh 30 Year Highs
The British Pound’s reaction to the latest UK inflation data today serves as an important example of how perspective and context are crucial in gauging market response to economic data. If we look back to the tail end of last year, GBP was rising as UK inflation continued to accelerate, putting upward pressure on BOE rate hike expectations. The BOE has since embarked on its tightening path and inflation is still coming in hot. However, this time we are seeing GBP lower, so the question is; how come?
Growth Fears Over Inflation Impact
The answer is that with inflation now running so far above the BOE’s projections (which have been consistently upgraded) and looking more persistent than it expected, the market now has growing concerns over the impact on UK growth. Headline CPI came in at 6.2% last month, another large jump from the prior month’s 5.5% result and well above the expected 6% reading the market was looking for. Core CPI saw a similar rise, coming in at 5.2% on the month, up from 4.4% prior and well above the 5% level the market was looking for.
Ukraine Crisis Driving Inflation Up
At this level, UK CPI is now at its highest since Q1 1992. The BOE has expressed concern about the pace of inflation, which it now forecasts to peak around 8% over Q2. The conflict in Ukraine has put sharp upward prices on energy ands food prices alike, as well as causing further disruption to global supply chains which were already under pressure.
Energy Bills Drive CPI Higher
Looking at the breakdown of the data, the largest upward contributions came from household services and transport, which added 1.39% and 1.26% respectively. With energy prices soaring, electricity, gas and transport fuels have seen sharp upward price moves. There is now a great deal of attention being placed on Chancellor Rishi Sunak who delivers the government’s Spring Statement later today, amidst growing calls for further government action to help alleviate the cost of living crisis in the UK. We will also hear from BOE governor Bailey, with traders keen to hear the latest assessment following yet another bumper inflation release.
Technical Views
GBPUSD
The rally in GBPUSD off the 1.3031 lows has seen the market trading back up into the middle of the bearish channel. Price is holding below the 1.3349 level for now. However, with both MACD and RSI turning higher here, there is room for a further correction higher while 1.3196 holds as support. To the topside, 1.3461 is the next upside marker to note, ahead of the channel top coming in just above.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.