The British pound has been pushed lower post UK-CPI (see economic calendar below) this morning after the report showed softer than expected inflationary data both YoY and MoM on headline and core inflation respectively. Key contributors to the upside came from “housing and household services (mainly from electricity, gas, and other fuels), and food and non-alcoholic beverages” while the largest downward funder stemmed from “transport (particularly passenger transport and motor fuels), and restaurants and hotels”.
ECONOMIC CALENDAR
After yesterday’s higher wage data, it may come as a surprise that services fell for the period (refer to table below) and will surely give impetus to dovish members of the Bank of England’s (BoE) MPC. That being said, looking at the BoE implied rate probabilities below, money markets have done little in the way of repricing the likely 25bps interest rate hike for the March meeting.
BANK OF ENGLAND INTEREST RATE PROBABILITIES
Chart prepared by Warren Venketas, IG
The daily GBP/USD chart above sold off immediately after the UK CPI report was released and considering the U.S. is showing comparatively sticky inflation pressures, a divergence between the two central banks is starting to show once more. From a technical analysis perspective, a third consecutive rising wedge pattern (black) is developing and looks to be heading towards wedge support. Before then, the 1.2100 psychological support handle needs to be breached to open up a pattern breakout exposing the key 1.2000 level.
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