UK CPI Jumps

We’re seeing heightened volatility in GBP today following the release of the latest UK economic data this morning. UK inflation was seen jumping above forecasts last month with headline annualised CPI hitting 2.3% from 1.7%, a stark increase and above the 2.2% reading the market was looking for. Similarly, core inflation was seen rising to 3.3% from 3.2% prior, above the 3.1% level the market was looking for.

Inflation Details

Looking at the breakdown of the data, housing and housing services saw the biggest upward contributions, rising 5.5% against 3.8% at the prior reading. Restaurants and hotels also saw a jump in prices. Notably, services inflation, which is a measure closely watched by the BOE, was seen rising again to 5% from 4.9%.

BOE Easing Expectations

With consumer prices now back at their highest level since April, the prospect of a further BOE cut in December looks much weaker. Expectations of a further cut had started to creep higher in response to weaker labour market and growth data recently. However, with prices jumping to such a large extent, the BOE will certainly want to see whether this was a one-off spike or the start of a trending move higher.

USD Strength Remains Key

While GBPUSD was higher initially, the broader macro picture of USD strength has seen those gains tempered for now. With USD pushing higher again today, the pair is vulnerable to a fresh break lower if we see DXY pushing back to highs. As such, will be key to watch incoming Fed speak later in the day which is likely to shape USD action.

Technical Views

GBPUSD

For now, price is hovering around the 1.2677 level support following heavy selling over the month so far. Given the decline, risks remain skewed to the downside with 1.2337 the deeper bear target if we break though the trend line support just below market.