Inflation Figures Weighs on GBP

Inflation Figures

U.K inflation figures came out with a mixed outlook today.

The CPI MoM retreated significantly to -0.8% in January compared to 0.1% previously, while the YoY inflation figures picked up to 0.3% up from 0.2% in December. In addition, the Core CPI YoY came out below estimates at 1.2% against 1.3% expected.

Retail price index came out slightly less than expected at 258.8 compared to 259.0 estimated.

Moreover, the RPI MoM declined to -0.7% in January down from 0.3% in December. In the opposite, the RPI YoY rose to 1.3% up from 1.2% earlier but still below market forecasts, which were at 1.4%.

In the meantime, we have seen higher than anticipated PPI inputs (MoM and YoY), which came out at -0.7% and -7.6% against estimates of -1.2% and -8.6% respectively.

Meanwhile, we have seen an improvement in the PPI output over a monthly basis. The MoM inflation figures recovered to -0.1% in January up from -0.3% previously while the PPI output YoY rose to -1.0% up from -1.4% in December.

Looking at the market reaction, the Sterling fell sharply to reach as low as 1.4275 level following the soft inflation data as investors understood that a rate increase by the Bank of England is unlikely in the near future.

Technically, our view was neutral on GBP/USD in the short-term.

The British pound was trading sideways between 1.4380/50 zone in the downside and 1.4550/70 in the upside.

Consequently, we prefered to wait for a clear break outside of this zone before taking new trading decisions. Looking at the hourly chart, we can see that bears took the control of this pair, especially after breaking below 1.4350 low.

In addition, the med-term trend remains bearish in this pair as far as 1.5240 peak is in place, which keeps the upside potential limited in this pair.

Traders have to wait for further daily close to confirm a breakdown below the recent range zone. A break below the mentioned zone should give us the next direction in the near-term.

In sum,  the Sterling is likely to stay under pressure as far as 1.4570 peak is in place of the inflation figures.

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