Forex Trading Library

UK Inflation Is Forecasted To Rise Further in February

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Article 50 Trigger Date

Finally, the big day is approaching for the UK. Yesterday, the UK Prime Minister Theresa May spokesman announced that May would trigger Article 50 of the European treaty on March 29th to start the Brexit process.

Shortly after the announcement, the European Commission also announced that they are ready to begin the Brexit negotiations anytime. They also said that everything is ready on this side “ we are waiting for notification.”

Furthermore, EU’s Tusk said that he would present a draft of Brexit negotiating guidelines within 48 hours from the trigger of the Article 50.

Inflation To Rise Further In February

In few hours, the UK will announce its inflation figures for the month of February. The estimates are notably higher compared to the previous month.

The YoY CPI is expected to rise to 2.1%, which is above the Bank of England inflation target. This would be the fourth monthly increase in a row and the highest reading since November of 2013.

Moreover, the YoY Core CPI is expected to rise to 1.7% in February compared to 1.6%, which would be the highest level since August of 2015.

Bank of England Policy

Last week, the Bank of England decided to keep the current policy unchanged as widely expected. However, the MPC Meeting Minutes showed a dramatic change.

One of the MPC members voted in favor to raise the interest rate by 25bps, while the rest of the members voted in favor to keep the currency policy unchanged including the asset purchases.

Despite the notable rise in inflation across the board and not only in the UK, the Bank of England noted that this is not worrying until now. The BoE expects inflation to rise above its target for some time, before retreating back.

Therefore, the Bank of England is unlikely to change the current policy anytime soon, unless inflation overshoots. By then, the Bank of England will most probably raise rates while the QE program continues.

Wages Might Drag Inflation Lower

Over the past two months, the wages growth has been slowing down, totally against the market estimates, which is one of the signs that the Bank of England is not worried about an overshoot in inflation.

The Core Average Earnings YoY eased back to 2.3% in February down from 2.6%, posting the second monthly slowing down and the lowest reading since August of last year.

At the same time, the Average Earnings Index YoY also slowed down for the second month in a row, declining all the way back to 2.2% from 2.6%, posting the lowest reading since April of last year.

Both indicators show no significant increase in wages, which means that the possibility of an overshoot in inflation is very low for the time being.

GBPUSD Remains Below 50 DAY MA

Despite the recent gains in GBPUSD over the past three sessions, this rally is still considered as a short term retracement, before the downside trend resumes.

Yesterday, GBPUSD tested its 50 DAY MA on the daily chart and its 50% retracement from the recent rally as shown on the chart, which makes it hard for the pair to break above that resistance in the coming hours.

However, the current upside retracement might extend toward the 61.8% Fibo which stands at 1.2479, before the downside trend resumes.

In all cases, the general trend remains bearish on most time frames. Selling rallies seems to be the right strategy for the time being.

Today’s economic releases including the inflation data might be the catalyst for a spike to that 61.8% Fibo retracement level, where sellers are likely to appear.


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