DailyFX.com -
- Headline U.K. Consumer Price Index (CPI) to Pick Up for Fourth Consecutive Month.
- Core Rate of Inflation to Hold Steady at Annualized 1.2% for Second Straight Month.
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Trading the News: U.K. Consumer Price Index (CPI)
Another uptick in the U.K. Consumer Price Index (CPI) accompanied by stickiness in the core-rate of inflation may generate a near-term rebound in GBP/USD as it puts increased pressure on the Bank of England (BoE) to normalize monetary policy sooner rather than later.
What’s Expected:
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Why Is This Event Important:
The BoE looks poised to retain its current policy ahead of the U.K. Referendum in June as the Monetary Policy Committee (MPC) remains unanimous in keeping the benchmark interest rate at the record-low, but signs of stronger price growth may encourage Governor Mark Carney to adopt a more hawkish tone over the coming months as the central bank sees a risk of overshooting the 2% inflation-target over the policy horizon.
Expectations: Bullish Argument/Scenario
| Release | Expected | Actual |
| Jobless Claims Change (FEB) | -9.1K | -18.0K |
| Average Weekly Earnings ex. Bonus (3MoY) (JAN) | 2.1% | 2.2% |
| Retail Sales ex. Auto Fuel (MoM) (JAN) | 0.7% | 2.3% |
Stronger wage growth along with the pickup in household spending may encourage U.K. firms to boost consumer prices, and a stronger-than-expected CPI report may spur a bullish reaction in the British Pound as it boosts interest-rate expectations.
Risk: Bearish Argument/Scenario
| Release | Expected | Actual |
| Lloyds Business Barometer (FEB) | -- | 28 |
| GfK Consumer Confidence (FEB) | 3 | 0 |
| BRC Shop Price Index (YoY) (FEB) | -- | -2.0% |
Nevertheless, waning confidence paired with fears surrounding the U.K. Referendum may drag on inflation, and signs of easing price growth may produce near-term headwinds for the sterling as market participants push out bets for a BoE rate-hike.
How To Trade This Event Risk(Video)
Bullish GBP Trade: Headline & Core Inflation Meet/Beat Market Forecast
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Need red, five-minute candle following the print to consider a short GBP/USD trade.
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If market reaction favors selling sterling, short GBP/USD with two separate position.
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Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward.
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Move stop to entry on remaining position once initial target is hit, set reasonable limit.
Bearish GBP Trade: U.K. CPI Report Disappoints
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Need green, five-minute candle to favor a long GBP/USD trade.
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Implement same setup as the bearish British Pound trade, just in reverse.