- The UK’s National Statistics Bureau will publish its July CPI data on Wednesday.
- Inflation as measured by CPI is expected to exceed the July target set by the Bank of England (BOE).
- GBP/USD has seen a slight bear correction before this release.
The UK June Consumer Price Index (CPI) is set to be released on Wednesday at 6:00 GMT. This report from the Office of National Statistics (ONS) garners attention due to its potential influence on BOE’s monetary policy decisions.
In July, UK inflation measured by CPI is forecasted to decrease by 0.1%, but year-on-year figures are anticipated to rise from 3.7% in June to 3.6%, after hitting 3.4% in May. Meanwhile, CORE CPI is projected to maintain an annual growth rate of 3.7%, unchanged from last month.
What are your expectations for the upcoming UK Inflation Report?
Consumer prices have been steadily increasing over the past 11 months since hitting a low of 1.7% inflation in September. If the market anticipations are realized, headline inflation could reach its highest level in nearly two years, nearly double the 2% target for price stability.
The BOE made a dramatic cut of 25 basis points to 4% during a meeting on August 7th, which was historic as it required two votes for the first time in 300 years. With projections indicating an annual inflation of 4% in September, these figures could bolster the Hawks’ stance, raising questions about additional interest rate cuts.
Subsequent data provided more support for a Hawkish policy approach. Preliminary GDP indicated growth exceeding forecasts in the second quarter, while unemployment claims also defied expectations.
Chris Turner, an analyst at ING, believes that the upcoming UK inflation numbers will likely bolster the pound.
How might the UK Consumer Price Index Report influence GBP/USD?
In this context, if the UK CPI readings surpass expectations, it could complicate future BOE rate cuts. This would emphasize the positive financial divergence with the Federal Reserve, which is likely to ease monetary policy in September, thus positively impacting Sterling demand.
Conversely, softer inflation readings might keep hopes alive for at least one rate cut in 2025, possibly broadening current corrective movements.
GBP/USD is currently retreating from its recent multi-week highs ahead of the CPI releases, undergoing a mild bear correction after a nearly 3% rise from its August 1 low. A combination of strong UK data and weaker US figures, which raised expectations for Fed easing, fueled this upward trend.
Pablo Piovano, a senior analyst at FXSTREET, argues that the pair is likely to return to a broader bullish trend in the short term, referencing a level of 1.3788 from July 1st.
On the downside, Piovano identifies support around 1.3385. The 100-day SMA of 1.3386 aligns closely with the August low of 1.3141.
