GBPUSD- U.K. Inflation Report to Make or Break British Pound
Trading the News: U.K. Consumer Price Index
The U.K. Consumer Price report could be a game-changer for the British Pound as the Bank of England (BoE) adopts forward-guidance for monetary policy.
What’s Expected:
Time of release: 08/13/2013 8:30 GMT, 4:30 EDT
Primary Pair Impact: GBPUSD
Expected: 2.8%
Previous: 2.9%
DailyFX Forecast: 2.8% to 3.0%
Why Is This Event Important:
Given the BoE’s track record of struggling to achieve the 2% target for inflation, a stronger-than-expected inflation report may heighten the scope of seeing the central bank implement its exit strategy ahead of schedule, but a slower rate of price growth may trigger a sharp selloff in the GBPUSD should the data raise the Monetary Policy Committee’s (MPC) scope to retain its highly accommodative policy stance.
The Upside/Bullish Scenario
| Release | Expected | Actual |
| Retail Sales ex Auto Fuel (MoM) (JUN) | 0.2% | 0.2% |
| Jobless Claims Change (JUN) | -8.0K | -21.2K |
| Average Weekly Earnings inc Bonus (3MoY) (MAY) | 1.4% | 1.7% |
Bright signs coming out of the U.K. economy may prompt businesses to hike consumer prices, and a faster rate of price growth may dampen speculation for additional monetary support as the BoE adds the inflation ‘knock-out’ to its forward guidance.
The Downside/Bearish Scenario
| Release | Expected | Actual |
| BRC Shop Price Index (JUL) | -- | -0.5% |
| Net Consumer Credit (JUN) | 0.7B | 0.5B |
| CBI Business Optimism (JUL) | 8 | 7 |
Nevertheless, U.K. firms may offer discounted prices in order to draw increased demands, and a marked slowdown in consumer prices may threaten the bullish trend in the GBPUSD as Governor Mark Carney keeps the door open to expand the Asset-Purchase Facility (APF) beyond the GBP 375B limit.
Expectations for a slower rate of inflation casts a bearish outlook for the sterling, but a positive development may set the stage for a long British Pound trade as it raises the BoE’s scope to implement its exit strategy ahead of schedule. Therefore, if the headline and core reading for inflation tops market expectations in July, we will need to see a green, five-minute candle following the release to consider a long entry on two-lots of GBPUSD. Should the market reaction favor a long trade, we will set the initial stop at the nearby swing low or a reasonable distance from the entry, and we will use this risk to establish our first objective. The second target will be based on discretion, and we will move the stop on the second lot to cost once the first trade hits its mark in order to preserve our profits.