GBP bulls received a further boost this week from solid inflation data released yesterday, fuelling a fresh spate of buying in the British Pound. The latest CPI inflation readings for August showed both headline and core inflation beating expectations. Headline inflation rose 2.7% over August, far outperforming expectations of 2.4% and hitting its highest level in six months. Core inflation was also substantial, printing 2.1% vs. 1.8% expected.
The increases were mainly driven by upward price movements in recreational goods, transport, and clothing with the ONS highlighting price hikes in theatre tickets, sea fares and new autumn clothing as the biggest drivers of the rise in inflation. Meanwhile, mobile phone costs, furniture, and household goods were all seen exerting downward pressure on inflation
BoE Under Pressure
While GBP is rallying hard today, the moves will not be welcomed by the BOE which is not looking to raise rates again until after the Brexit deadline in March 2019, when it will have a more unobstructed view on how the economy is likely to be impacted.
Retail Sales Strong In August
Alongside the rise in inflation, the latest retail sales data also beat expectations with retail sales (excluding auto fuel) printing 3.5%, well above the expected 2.3% figure. The rise was reportedly fuelled by a surge in household goods, electrical goods, and appliances, all of which are said to have been heavily discounted over the summer. These moves offset decline seen in food sales and clothing sales.
The rally in GBPUSD has taken price back up to test the underside of the broken rising trend lien from 2016 lows. If price can break again above this level, the 1.3704 resistance level will come into focus. To the downside, a retest of the 1.3045 area should hold as support with the emphasis remaining on a further correction higher for now.