UK Inflation key for GBP performance

18 April, 2018

Rob Bastin

Tuesday’s trading kicked off the busy few days for the pound with the first important data releases for the week. Uk unemployment produced a mixed bag of results with the headline rate positively dropping from 4.3% to 4.2%, but claimant count change was more than double expectations of 5k with a result of 11.6k.

Of greater significance were the average earning figures which missed forecasts of 3% with actual results coming in at just 2.8% which is still a good figure and crucially is higher than the current inflation rate of 2.7%. With all this in mind, the pound traded relatively flat yesterday, finishing the day much where it started against the Euro (11-month high for buying) although down against the stronger USD that pulled back 0.5% against both the Pound and the Euro yesterday.

Today will see one of the most important releases for Sterling in the coming weeks, with the latest Inflation figures for the UK. Since the last bank of England meeting the pound has held much stronger with the speculation of another 0.25 basis point rate hike in May. 2 members of the MPC voted for a hike at the last meeting and 3 more votes will be needed to push through a hike. One factor that is a real risk to this materialising is the dropping Inflation figure.

Inflation has dropped from 3.1% to 2.7% since January and the lower inflation goes, the less likely we see a rate hike as rate hikes are typically a tool for curbing high inflation. If results post 2.7% or lower then recent gains could be wiped off very quickly, and the pound currently at the top its technical range against the Euro it will likely take a higher figure of 2.9%+ for the current ceiling of resistance to be broken.

Today’s result could very well set the tone for Sterling over the next month. It also worth noting that Brexit talks resume this week, another potential hurdle that has frequently tripped up the pound in recent months.

Elsewhere today we will also see inflation data for the Euro-zone at 10 am and there is an interest rate decision in Canada at 3 pm with another hold on rates expected.