How To Trade the UK’s Inflation Figures Ahead

The recent economic releases from the UK came in contrary to market expectations. It showed some improvement since the Bank of England decided to increase its QE and cut the main rate to 0.25% after the Brexit vote. These figures have led to notable stabilization in the British Pound over the past two weeks. Moreover, the Bank of England stated that the outlook might not be as bad as they anticipated it to be, which is also one of the reasons why the GBP has stabilized. Today, all eyes turn toward the UK inflation data, which is set to have a notable impact on the markets, as it will likely give some hints about the Bank of England’s possible tone and decision this week.

Moreover, the Bank of England stated that the outlook might not be as bad as they anticipated it to be, which is also one of the reasons why the GBP has stabilized. Today, all eyes turn toward the UK inflation data, which is set to have a notable impact on the markets, as it will likely give some hints about the Bank of England’s possible tone and decision this week.

Why Is This Event Important

Inflation figures measure the change in the price of goods and services for each month throughout the year. The Bank of England always monitors inflation to adjust its policy in order to achieve price stability. As for the traders, inflation is directly linked to currency valuation because rising prices can lead the Bank of England to raise interest rates (positive for the currency), while lower inflation may lead the bank to cut interest rates (negative for the currency).

What To Watch Out For

The inflation report always includes multiple figures, including the CPI and Core CPI on MoM (month over month) and YoY (year over year). The most important index to watch is the Core CPI; it measures the real inflation situation in the country, excluding the most volatile goods and services such as energy.

How GBP Pairs May React

A slowdown in Core Inflation index would be a disappointment for traders and the Bank of England, which is likely to lead the central bank to take more stimulus measures. In return, GBP value is set to decline further. Stocks, on the other hand, may rally.

In the opposing scenario, rising core inflation to 1.4% from 1.3% (today’s market expectations) is seen as some good news for the central bank. This is primarily because it set its inflation target at 2%. Higher inflation would keep the central bank away from easing its monetary policy further. In return, the GBP could rally further and stocks may continue with their recent declines.

Symbol	S3	S2	S1	Pivot	R1	R2	R3
GBPUSD	1.3148	1.3191	1.3265	1.3308	1.3382	1.3425	1.3499
GBPJPY	133.78	134.40	135.13	135.75	136.48	137.10	137.83
GBPAUD	1.7369	1.7456	1.7542	1.7629	1.7715	1.7802	1.7888
EURGBP	0.8324	0.8370	0.8397	0.8443	0.8470	0.8516	0.8543