DailyFX.com -
- U.K. Consumer Price Index (CPI) to Pick Up for First Time Since June.
- Core Inflation to Climb to Annualized 1.4% After Holding Steady at 1.3% in August.
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Trading the News: U.K. Consumer Price Index (CPI)
A material pickup in both the headline and core U.K. Consumer Price Index (CPI) may sap the bearish sentiment surrounding the British Pound and spark a larger recovery in GBP/USD especially as a growing number of Bank of England (BoE) officials see a greater threat of overshooting the 2% target for inflation.
What’s Expected:
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Why Is This Event Important:
Even though the BoE argues ‘a majority of members expect to support a further cut in Bank Rate to its effective lower bound,’ heightening price pressures may keep the Monetary Policy Committee (MPC) on the sidelines throughout the remainder of the yearas Deputy Governor Jon Cunliffe warns the next quarterly inflation due out on November 3 will reflect the sharp decline in the exchange rate. In turn, GBP/USD may face a more meaningful correction as the BoE looks poised to endorse a wait-and-see approach ahead of 2017, but the broader outlook for the sterling remains tilted to the downside as the risk of a ‘hard Brexit’ clouds the outlook for growth and inflation.
Expectations: Bullish Argument/Scenario
| Release | Expected | Actual |
| Lloyds Business Barometer (SEP) | -- | 24 |
| Net Consumer Credit (AUG) | 1.4B | 1.6B |
| Retail Sales ex Auto Fuel (MoM) (AUG) | -0.7% | -0.3% |
Improved business confidence paired with the expansion in private-sector credit may boost consumer prices, and a marked pickup in the headline and core rate of inflation may trigger a bullish reaction in the sterling as market participants scale back bets for the next BoE rate-cut.
Risk: Bearish Argument/Scenario
| Release | Expected | Actual |
| Construction Output s.a. (MoM) (AUG) | 0.0% | -1.5% |
| Average Weekly Earnings ex. Bonus (3MoY) (JUL) | 2.2% | 2.1% |
| Producer Price Index- Output n.s.a. (YoY) (AUG) | 1.0% | 0.8% |
Nevertheless, subdued wages accompanied by low input prices may drag on inflation, and another dismal CPI print may weigh on GBP/USD as it puts increased pressure on the BoE to implement another rate-cut in 2016.
How To Trade This Event Risk(Video)
Bullish GBP Trade: Headline & Core CPI Pick Up in September
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Need green, five-minute candle following the print to consider a long GBP/USD trade.
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If market reaction favors long sterling, buy GBP/USD with two separate position.
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Set stop at the near-by swing low/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.