GBP/USD. The UK inflation report surprised many people
March 22, 2023 5:23 pm
Honestly, I was surprised by the report on inflation growth that was published in the UK. The fact that every component of the release was made public in the “green zone” made an already challenging puzzle of a basic nature even more challenging. For instance, there would have been no suspense surrounding the Bank of England meeting’s outcomes if February inflation had followed the trajectory of January. The regulator was likely to have maintained the status quo and left all the monetary policy parameters unaltered. However, neither the market nor history are aware of the subjunctive mood. The inflation release did, in fact, surprise traders with a “green color,” which raised speculation about the English regulator’s potential next moves.
The reported data show that the aggregate consumer price index unexpectedly increased to 10.4% in February (in annual terms). It is important to note that this indicator has been steadily falling over the preceding three months, which indicates a reduction in the rate of inflation. The majority of experts anticipated that the indicator would continue to fall, reaching a level of 9.9%. However, the index was far higher than expected. The aggregate CPI also performed well every month, rising to 1.1% with growth predicted to be 0.6%.
Similar findings were found in the core consumer price index, which did not include volatile energy and food prices. After falling to 5.8% in January, the indicator increased to 6.2% by the end of February. Although the majority of analysts expected this indicator to decrease even further (by up to 5.7%).
The “green zone” also saw the release of the retail price index. It increased to 1.2% every month (with growth expectations of up to 0.6%) and up to 13.8% on an annual basis (with growth expectations of 13.3%). The producer purchase price index, another component of the report, increased to 12.7% y/y in February, exceeding experts’ predictions of 12.0%.
The format of the published report leads one to believe that a sharp rise in hotel and restaurant prices was to blame for the acceleration of inflation. This component experienced a sudden increase of 12.1%; this is the fastest rate of growth since June 1991. Additionally, the price of food and soft drinks has dramatically increased: the indicator has risen by 18% (the maximum growth rate since August 1977). The cost of clothing and footwear has increased by 8%, that of alcohol and cigarettes by almost 6%, and that of transportation services (including fuel) by almost 3%. Housing and utility costs increased by 26.6%. The timing of these data is significant because the UK government had forecast last week a strong slowing in inflation, up to 2.9% by the end of the year. The primary indices, as we can see, have been moving in the other way.
The Bank of England’s March meeting is tomorrow, or on Thursday, and the latest inflation report was released on the eve of that meeting. The regulator was in a challenging position since, on the one hand, the prevailing conditions necessitate the Central Bank to raise the rate even higher, which will halt inflationary growth. Britons are grumbling that wages are not keeping up with growing prices, and nationwide strikes are putting more fuel on the fire. For instance, the majority of British passport service employees will go on five weeks of strike action starting next month over a pay issue.
On the other hand, representatives of the British regulator have recently made repeated statements about the need for a delay in raising the rate, notably in light of the growing number of business complaints related to the banking crisis.
Andrew Bailey, the governor of the Bank of England, is using conflicting rhetoric to discuss this. For instance, he claimed at the beginning of March that the Central Bank may have already finished its current cycle of rate increases, but that it was still too early to predict the direction of monetary policy going forward. He asserts that certain rate increases “may be justified,” but that no decision has been taken in this regard. Later, he issued a warning against assuming that the Bank of England’s cycle of rate hikes is over. According to Bailey, the regulator must make sure that the situation does not get worse as a result of inflation’s acceleration. In this regard, he further stated that the Central Bank “will later have to do much more” if it “does too little concerning interest rates now.”
Conclusions
In light of the main inflation indicators’ unexpected growth, it is safe to predict that the Bank of England will raise interest rates once more, most likely by 25 basis points, in response to the meeting’s outcomes. In response to today’s announcement, the pound and the dollar moved in the same direction: the British currency recovered yesterday’s lost ground and moved closer to the 23rd position.
However, it is important to keep in mind that the results of the March Fed meeting will be released today when making trading decisions on the GBP/USD pair. The dollar may appreciate across the board in the market, including in pairs with the pound, if the Fed maintains its hawkish tone and raises interest rates by 25 basis points (which is quite likely to happen).
It’s also important to note that the GBP/USD pair came quite near to the price boundary known as resistance level 1.2300 (the top line of the Bollinger Bands indicator on the daily chart), but buyers refrained from testing it. All of this shows that despite the underlying environment favoring the pound, long positions for the pair remain risky. It is best to adopt a wait-and-see attitude until the results of the Fed meeting are announced. In any case, it is advised to wait to consider purchasing after purchasers have overcome the 1.2300 resistance level.
The material has been provided by InstaForex Company – www.instaforex.com
Honestly, I was surprised by the report on inflation growth that was published in the UK. The fact that every component of the release was made public in the “green zone” made an already challenging puzzle of a basic nature even more challenging. For instance, there would have been no suspense surrounding the Bank of England meeting’s outcomes if February inflation had followed the trajectory of January. The regulator was likely to have maintained the status quo and left all the monetary policy parameters unaltered. However, neither the market nor history are aware of the subjunctive mood. The inflation release did, in fact, surprise traders with a “green color,” which raised speculation about the English regulator’s potential next moves.
The reported data show that the aggregate consumer price index unexpectedly increased to 10.4% in February (in annual terms). It is important to note that this indicator has been steadily falling over the preceding three months, which indicates a reduction in the rate of inflation. The majority of experts anticipated that the indicator would continue to fall, reaching a level of 9.9%. However, the index was far higher than expected. The aggregate CPI also performed well every month, rising to 1.1% with growth predicted to be 0.6%.
Similar findings were found in the core consumer price index, which did not include volatile energy and food prices. After falling to 5.8% in January, the indicator increased to 6.2% by the end of February. Although the majority of analysts expected this indicator to decrease even further (by up to 5.7%).
The “green zone” also saw the release of the retail price index. It increased to 1.2% every month (with growth expectations of up to 0.6%) and up to 13.8% on an annual basis (with growth expectations of 13.3%). The producer purchase price index, another component of the report, increased to 12.7% y/y in February, exceeding experts’ predictions of 12.0%.
The format of the published report leads one to believe that a sharp rise in hotel and restaurant prices was to blame for the acceleration of inflation. This component experienced a sudden increase of 12.1%; this is the fastest rate of growth since June 1991. Additionally, the price of food and soft drinks has dramatically increased: the indicator has risen by 18% (the maximum growth rate since August 1977). The cost of clothing and footwear has increased by 8%, that of alcohol and cigarettes by almost 6%, and that of transportation services (including fuel) by almost 3%. Housing and utility costs increased by 26.6%. The timing of these data is significant because the UK government had forecast last week a strong slowing in inflation, up to 2.9% by the end of the year. The primary indices, as we can see, have been moving in the other way.
The Bank of England’s March meeting is tomorrow, or on Thursday, and the latest inflation report was released on the eve of that meeting. The regulator was in a challenging position since, on the one hand, the prevailing conditions necessitate the Central Bank to raise the rate even higher, which will halt inflationary growth. Britons are grumbling that wages are not keeping up with growing prices, and nationwide strikes are putting more fuel on the fire. For instance, the majority of British passport service employees will go on five weeks of strike action starting next month over a pay issue.
On the other hand, representatives of the British regulator have recently made repeated statements about the need for a delay in raising the rate, notably in light of the growing number of business complaints related to the banking crisis.
Andrew Bailey, the governor of the Bank of England, is using conflicting rhetoric to discuss this. For instance, he claimed at the beginning of March that the Central Bank may have already finished its current cycle of rate increases, but that it was still too early to predict the direction of monetary policy going forward. He asserts that certain rate increases “may be justified,” but that no decision has been taken in this regard. Later, he issued a warning against assuming that the Bank of England’s cycle of rate hikes is over. According to Bailey, the regulator must make sure that the situation does not get worse as a result of inflation’s acceleration. In this regard, he further stated that the Central Bank “will later have to do much more” if it “does too little concerning interest rates now.”
Conclusions
In light of the main inflation indicators’ unexpected growth, it is safe to predict that the Bank of England will raise interest rates once more, most likely by 25 basis points, in response to the meeting’s outcomes. In response to today’s announcement, the pound and the dollar moved in the same direction: the British currency recovered yesterday’s lost ground and moved closer to the 23rd position.
However, it is important to keep in mind that the results of the March Fed meeting will be released today when making trading decisions on the GBP/USD pair. The dollar may appreciate across the board in the market, including in pairs with the pound, if the Fed maintains its hawkish tone and raises interest rates by 25 basis points (which is quite likely to happen).
It’s also important to note that the GBP/USD pair came quite near to the price boundary known as resistance level 1.2300 (the top line of the Bollinger Bands indicator on the daily chart), but buyers refrained from testing it. All of this shows that despite the underlying environment favoring the pound, long positions for the pair remain risky. It is best to adopt a wait-and-see attitude until the results of the Fed meeting are announced. In any case, it is advised to wait to consider purchasing after purchasers have overcome the 1.2300 resistance level.
The material has been provided by InstaForex Company – www.instaforex.com
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