UK Expects Lower CPI Data Amid Slow GDP Growth
GBPUSD is moving in the Descending channel and the market has rebounded from the lower low area of the channel.
The positive momentum witnessed in the first full week of 2023 has been halted in GBP/USD as markets prepare for a data-heavy week from the United Kingdom. The crucial Consumer Price Index (CPI) is set to be released on Wednesday at 07:00 GMT, so all eyes will be on that number. On the release of the United Kingdom’s inflation data, will the pound continue its recent drop against the United States dollar (USD)?
UK CPI Data
After having reached its lowest level in more than a year’s time in November, the Consumer Price Index (CPI) data for the month of December in the UK is expected to decline further to 10.6% YoY, while the inter-month CPI is expected to remain stable at 0.4%. There is a good chance that the annualized core inflation rate will increase to 6.6% from the 6.3% recorded in November.
EURGBP is moving in the Descending channel and the market has fallen from the lower high area of the channel
Following October’s 41-year high of 11.1%, the Consumer Price Index for the United Kingdom dropped more quickly than predicted in November, to 10.7%, which prompted the Bank of England (BoE) to raise the main policy rate by 50 basis points (bps), bringing it up to 3.50%. In spite of this, the future seemed gloomy for the Pound Sterling as a result of the composition of the voting body.
The decision to raise the rates was approved with a voting count of 6-3. Two members of the Monetary Policy Committee (MPC), Silvana Tenreyro and Swati Dhingra, voted to keep interest rates at their current level of 3.0%, while another member, Catherine Mann, voted to raise it by 75 basis points (bps) to 3.75%. As a result of the fact that experts anticipate the Consumer Price Index to continue moving away from the top once again, the dovish members of the Bank of England’s monetary policy committee may extend their control at the forthcoming policy meeting on February 2.
It is possible that plummeting energy costs are at least partially to blame for the drop in the headline statistics for the Consumer Price Index. This should come as some solace to families living in the United Kingdom. The possibility of a downward trend in UK inflation might stoke hopes that the Bank of England would signal the end of its cycle of tightening monetary policy as early as the beginning of the month after this one.
Catherine Mann on Monetary Policy
Member of the Monetary Policy Committee, Huw Pill, recently gave a speech about how we use data to spot turning points in the economy. She reveals, “Over the last week or so, many advanced economy central banks increased their policy rates. The Federal Reserve increased by 25 basis points, the European Central Bank and the Bank of England by 50, although the Bank of Canada signaled a pause and the Bank of Japan maintained its updated yield curve control target. It seems that at least some central bankers are seeing a turning point in data to which they are responding with an inflection in their respective policy paths.”
GBPJPY is moving in an Ascending triangle pattern and the market has reached the resistance area of the pattern.
“Recent market chatter has focused on when central banks will stop hiking and if they will reverse, with fears torn between the risks of overtightening and stopping too soon. What has everyone been looking for and what have they seen? It is worthwhile even to consider what we mean by a turning point.
In general, it reflects data that reveal transition points between phases of a business cycle. This can help guide monetary policy makers with the calibration of future policy. One approach to identifying turning points puts substantial weight on forecasts from large macroeconomic models, because these take account of the complex inter-relationships.”
UK Job Market
In the next year, it is anticipated that an economy that is having trouble gaining speed would witness a diminishing hiring demand from companies, which will therefore lead to poorer pay growth. On the other hand, if the labor market continues to show signs of strength and businesses feel secure enough to keep increasing their prices, then higher rates of inflation may be here to stay.
GBPCAD is moving in the Descending triangle pattern and the market has rebounded from the horizontal support area of the pattern.
The majority of analysts believe that it will be too early to tell based on this week’s jobs numbers alone, with predictions rising that they would indicate that pay growth increased somewhat before inflation was taken into account. Despite this, there are indications coming from company surveys as well as information obtained from the Bank’s network that the labor market is losing some of its steam.
UK Inflation Crisis
After what seems like an eternity, the annual inflation rate in Britain is finally beginning to decline. After reaching its highest level since the 1980s and putting a strain on millions of households as the cost of living continued to rise, official numbers released this week may deliver some unexpectedly positive information.
City experts anticipate that the rate of inflation in the United Kingdom slowed for a third consecutive month in January – the precise amount will be released on Wednesday – supported by lowering costs for gasoline and a general reduction in the price of oil and gas globally in recent months. The current outlook is for a continuation of the downward trend that began in October when unemployment hit a record high of 11.1% and calls for a continued fall in the coming months. There are two compelling arguments in support of this position.
GBPCHF is moving in an Ascending channel and the market has reached the higher high area of the channel.
Energy costs are trending in the right direction, and the initial spike in wholesale oil and gas prices that followed Russia’s invasion of Ukraine in February of last year will soon be removed from the calculation of the annual inflation rate. This is due to the fact that energy costs are moving in the right direction. However, the path that lies ahead is not at all obvious.
The cost of living is still extremely high, putting millions of people at risk of falling into poverty in this next year. A decrease in inflation does not always signify that prices for consumers are lowering; rather, it only indicates that the annualized rate of rise isn’t quite as fast as it was in the preceding month. Inflation is expected to remain over 10% in January, according to analysts, which would be the highest rate in about forty years. However, this month may be the last month of double-digit price rise, and pundits are wagering that there is no other direction for prices to go but down.
