UK CPI Holds At 2.8%

GBP is a touch softer today after the latest UK inflation data showed that headline CPI remained unchanged at 2.8% last month, below the 3% the market was looking for. The stagnation in price pressures was attributed to the smallest rise in food prices in over half a year, which was able offset the upside impact of higher transportation costs. There was also an offsetting impact from the cuts to domestic gas and electricity bills announced in last year’s budget which took effect this year, helping cool overall prices.

BOE Expectations

While still above the bank’s 2% CPI target the data is at least encouraging that the prior upwards trend is perhaps over. News this week of a peace deal between the US and Iran has seen a heavy sell off in crude prices which look set to continue lower as the deal is signed on Friday. Much of the hawkish inflation outlook in the UK was built on the view of an ongoing impact from the Iran war via elevated energy prices. As such, if energy prices begin trending lower from here, this could heavily alter the outlook in the UK, taking a lot of pressure off the BOE and fuelling a dovish repricing in the rates outlook, leading GBP lower.

Technical Views

GBPUSD

For now, the pair remains within the contracting triangle pattern which has framed the recent consolidation, anchored around the 1.3446 level. If we break lower, 1.3238 will be the local support to note ahead of the deeper 1.3046 level. If we break higher, however, 1.3656 will be the next resistance to note ahead of the higher 1.3774 level.