Consumer price inflation in the UK slowed to 0.3% on an annualized basis, marking the lowest inflation reading since 1989 or in over 25 years while, ohowever cn a monthly basis, inflation declined -0.9%. Falling crude oil prices were largely to be blamed but also declining food costs added to the woes.
The dip in , however, omes as forecasted by the Bank of England. In its latest February inflation report hearing, the BoE expected inflation to temporarily fall below zero during spring and would bounce back later in the year as prices stabilize according to the cheap fuel prices.
Besides the inflation reading, the ONS also released the UK housing data. House prices managed to rise 9.8% for last year, modestly lower from 9.9% previously. Across the global economy, the housing markets have managed to remain hot despite falling inflation and amidst interest rate cuts which were primarily aimed towards boosting economic growth but managed to help home buyers as well.
The rise in the home prices coupled with a steady and better than expected average earnings in the UK could potentially shift the scales for an interest rate hike during this year, provided inflation manages to stabilize. With crude oil prices lifting off from their lows near $44 and trading comfortably above the $50 handle, we could expect to see some respite in the downward pressure on inflation in the coming months, which should be beneficial, especially for the UK.
The British Sterling saw a sharp decline but managed to turn around across the board. The Cable briefly dipped to 1.533 before managing to turn higher trading at 1.539 levels.
GBPJPY, which opened the day and saw sharp losses, turned around from the lows of 181.5 to trade at session highs of 182.9 levels.
The Euro which was weaker on account of the ongoing Greece debt negotiations continued in its downtrend against the British Sterling was trading near 0.7413 levels, but looks poised for some upside gains.
The EURGBP chart below shows what seems like a price consolidation taking place currently with price action trading within a falling triangle pattern. A successful bbreakoutto the upside, above the immediate support/resistance level at 0.74325 could see further gains with the likelihood of price reaching as high as 0.748 in the near term.
The main risks to the British Sterling comes from today’s Empire state manufacturing index data followed by tomorrow’s monthly jobs report from the UK and eventually the FOMC meeting minutes due later during the US trading session. Although the GBPUSD is starting to look bullish, we expect to see a retracement towards 1.53 levels before we can expect further rally to ensue.
