No major surprises to UK inflation (January)

Feb 16 2016, 10:12 am
UK Inflation

Inflation data for the UK released earlier today showed no major surprises, with the sub-components coming more or less in line with expectations. The annualized core CPI increased 1.20%, less than 1.30% and down from 1.40% previously. Headline CPI for the year was up 0.30% matching estimates and up from 0.20% previously. On a monthly basis, headline CPI fell -0.80%, below the -0.70% estimates and down from 0.10% increase seen a month ago, according to data released by the Office for National Statistics (ONS).

The pickup in headline annualized CPI came from a change in motor fuels, food, and clothing. The headline CPI edged higher to one of the highest CPI readings this year so far as Oil prices declined less than in January. However, the overall outlook remains bleak with the BoE expecting to see inflation remaining subdued for the most part of this year. The Bank of England is unlikely to do anything in the near future, which as of its last monetary policy meeting left interest rates unchanged by a unanimous vote. Previously, there was one dissenter, Ian McCafferty who was voting to a rate hike.

Yesterday, a BoE official, in an interview was quoted as saying that the Bank of England has enough policy tools should the need arise to stimulate the economy and would not hesitate to cut rates to the negative. The comments did not impact the British Pound much. GBPUSD remains range bound for the past few days after prices touched a high of 1.465 on February 3rd and 4th.

Following today’s inflation report, the British Pound will be at risk to the monthly unemployment data due tomorrow. Expectations are mixed with the median consensus pointing to the UK’s unemployment rate falling to 5.0% but the average earnings are expected to decline, rising 1.90%, down from 2.0% increase seen a month ago.

In the run up to today’s inflation data release, GBPUSD managed to tick higher and posted an intraday high to 1.45 before giving back the gains in the next session. GBPUSD is currently trading 0.09% higher for the day, at $.1.444.

The markets, in general, are trading mixed into the European session. While the Yen weakened during the Asian trading, the Euro surged in the first few hours of the European trading session, followed by the US Dollar trading somewhat weaker. USDJPY which touched a session high of 114.8Yen was seen trading lower -0.70% at the time of writing. EURUSD is currently attempting to recover some of the losses from yesterday and is up 0.23% higher for the day. In general, the Single currency was seen pushing higher in what looks to be a possible risk off sentiment building up in the markets, intraday. Gold prices are trading above the $1200 handle with gains of 0.19%, currently at $1211 an ounce.

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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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