Tuesday, March 20, 2012

GBPUSD – Traders Await UK CPI

After trending higher yesterday, the GBPUSD is off this morning as it is trading around 1.5865, as Forex traders await UK’s upcoming CPI data.  Expectations for the year over year figure are 3.4% versus last month’s number of 3.6%.  Although the fall in inflation follows the Bank of England’s forecast that the UK’s rising inflation last year was only a temporary condition, it does raise the question of whether the fall is due to a soft economy.  As such, if CPI is seen dropping faster than expected, it could lead to pound weakness as Forex traders may interpret the news as proof of a further economic slowdown.

Key among economists’ forecasts for a decline in CPI are lower energy prices from utility providers as well as a drop in retail prices.  Wales Online has more on the forecasted 15 month low in UK inflation.

Lower utility bills and discounting from struggling retailers are set to pull the rate of inflation down to a 15-month low.
The consumer prices index (CPI) is forecast to fall to 3.3% in February, from 3.6% in January, as energy cuts by E.ON and Scottish Power came into effect, but experts have warned the cost of living in the months ahead could be stickier than previously thought.
Non-food retailers also continued to slash prices in the month, according to the British Retail Consortium, as they battled to pull in cash-strapped consumers.
The dip in the CPI rate of inflation will continue the downward trend experienced in recent months and matches forecasts by the Bank of England, which predicted that the rise in cost of living would ease throughout 2012.
However, Victoria Cadman, economist at Investec, warned February's inflation outturn is "unlikely to be without some upward pressures too" with food and fuel prices appearing to have recorded firmer month-on-month rises.
Other economists have suggested higher-than-expected oil prices present a "very real danger" that the inflation rate will not subside as quickly as predicted.
The cost of Brent crude in London has risen by nearly 25% since the start of the year to around 125 US dollars a barrel as tensions in Iran and Syria escalate.  Read More

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