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UK CPI Slips Again

GBP is weakening today after the latest UK inflation data showed that consumer prices are on the decline once again. Following an uptick to 4% over January, annualized headline CPI was seen falling back to 3.4% last month, below the 3.5% the market was looking for. Similarly, core CPI was seen falling to 4.5% from 5.1%, below the 4.6% the market was looking for. While both readings are still well above the bank’s 2% target, the BOE will no doubt be buoyed by the fact that prices have resumed their downward trajectory, offering hope for a continued easing of inflation in the coming months.
 

BOE Easing Expectations

The sell-off in GBP today likely reflects the expectation that we might see the BOE cutting rates sooner than currently projected. The bank’s chief economist recently signaled that the BOE might cut rates ahead of inflation returning to target as a reward to the economy for helping level out rampant inflation. As such, should CPI continue to decline in coming readings, traders are likely to bring forward their BOE rate projections from the current August standpoint, which should keep GBP pressured for now. Looking ahead today, any hawkishness from the Fed should help further amplify selling in GBPUSD, sending the pair lower across the back half of the week.
 

Technical Views

GBPUSD

The failure at the 1.2832 level has seen the market trading lower with price now retesting the broken bear trend line ahead of the 1.2612 level support. This is a key support region for the pair with bulls needing to defend here to keep the focus on a further push higher towards 1.2992. Below 1.2616 the view turns bearish towards 1.2437 next. 

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