- United Kingdom’s annual CPI rose 2.8% in February vs. 2.9% estimate.
- British inflation jumped to 0.4% MoM in February vs. 0.5% forecast.
- GBP/USD holds losses below 1.2950 after UK CPI inflation data.
The United Kingdom (UK) Consumer Price Index (CPI) rose 2.8% year-over-year (YoY) in February, following January’s 3.0% acceleration, according to data released by the Office for National Statistics (ONS) on Wednesday.
Markets expected a 2.9% growth in the reported period. The reading remained well above the Bank of England’s (BoE) 2% target.
The core CPI (excluding volatile food and energy items) increased at an annual rate of 3.5% % in the same period, compared to a 3.7% jump in January, coming in below the market forecast of 3.6%.
Services inflation stayed at 5% YoY in February.
Meanwhile, the monthly UK CPI inflation rebounded to 0.4% in February from -0.1% in January. Markets estimated a 0.5% reading.
GBP/USD reaction to the UK CPI inflation data
The UK CPI data exerts a mild downward pressure on the Pound Sterling, sending GBP/USD 0.15% lower on the day below 1.2950, as of writing.
British Pound PRICE Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the weakest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.07% | 0.16% | 0.39% | -0.11% | -0.25% | -0.36% | 0.13% | |
| EUR | -0.07% | 0.09% | 0.29% | -0.18% | -0.31% | -0.46% | 0.06% | |
| GBP | -0.16% | -0.09% | 0.23% | -0.27% | -0.40% | -0.52% | -0.00% | |
| JPY | -0.39% | -0.29% | -0.23% | -0.50% | -0.67% | -0.76% | -0.25% | |
| CAD | 0.11% | 0.18% | 0.27% | 0.50% | -0.11% | -0.25% | 0.28% | |
| AUD | 0.25% | 0.31% | 0.40% | 0.67% | 0.11% | -0.12% | 0.39% | |
| NZD | 0.36% | 0.46% | 0.52% | 0.76% | 0.25% | 0.12% | 0.51% | |
| CHF | -0.13% | -0.06% | 0.00% | 0.25% | -0.28% | -0.39% | -0.51% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
This section below was published at 03:15 GMT as a preview of the UK Consumer Price Index (CPI) inflation data.
- The United Kingdom’s Office for National Statistics will release the February CPI data on Wednesday.
- The annual UK headline and core CPI inflation are set to ease slightly in February.
- The UK CPI data could impact the direction of the Pound Sterling and the BoE’s interest rates.
The United Kingdom’s (UK) Office for National Statistics (ONS) will publish the highly anticipated Consumer Price Index (CPI) data for February on Wednesday at 07:00 GMT.
The Pound Sterling (GBP) could experience intense volatility following the UK CPI inflation report, as it is likely to alter the market’s expectations for the Bank of England’s (BoE) future interest rate cuts.
What to expect from the next UK inflation report?
The UK Consumer Price Index is expected to increase by 2.9% year-over-year (YoY) in February, following a 3% growth in January.
The reading is expected to remain distant from the BoE’s 2.0% target.
Core CPI inflation, which excludes energy, food, alcohol, and tobacco prices, is expected to be slightly lower at 3.6% (YoY) in February, down from January’s 3.7%.
According to a Bloomberg survey of economists, official data is expected to show that service inflation will likely ease to 4.9% in February after jumping to 5% in January.
Meanwhile, the British monthly CPI is expected to rise by 0.5% in the same period, compared to the previous decline of 0.1%.
Previewing the UK inflation data, TD Securities analysts noted: “Inflation is slated to cool slightly, with headline dropping to 2.8% (consensus: 2.9%; prior: 3.0%). We also expect core and services to come in lower, at 3.6% YoY (prior: 3.7% YoY and 4.9% YoY (prior: 5.0% YoY), respectively. While all these numbers are softer than in Jan, the deceleration remains too slow for the Monetary Policy Committee’s (MPC) preferences.”
How will the UK Consumer Price Index report affect GBP/USD?
At its monetary policy meeting earlier this month, the Bank of England (BoE) held interest rates at 4.5% on Thursday, warranting caution against expectations that they would cut rates over its next few meetings amid heightened uncertainty over the UK and global economies.
“However, the 8-1 vote split to stay on hold was a hawkish surprise and triggered an upward adjustment to UK rate expectations. The swaps market continues to price in 50 bps of easing over the next 12 months but has fully priced out any odds of an additional 25 bps cut following the less dovish MPC vote split,” BBH analysts noted.
Therefore, an upside surprise to the headline and core inflation data is needed to reaffirm the BoE’s prudent approach and increased bets for fewer rate cuts this year. In such a case, the Pound Sterling uptrend is expected to resume, lifting GBP/USD back toward the 1.3050 barrier. Conversely, softer-than-expected inflation readings will likely alleviate UK economic concerns, reviving expectations for aggressive BoE rate cuts and extending GBP/USD correction from four-month highs.
Any reaction to the UK inflation report is likely to be short-lived, given the upcoming British Spring Budget Statement, scheduled for later on Wednesday.
Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for the major and explains: “GBP/USD is holding above all major daily Simple Moving Averages (SMA) heading into the UK CPI showdown, with the 14-day Relative Strength Index (RSI) momentum indicator in the daily chart holding firm above 50. The 50-day SMA and the 100-day SMA Bull Cross, confirmed on Monday, remains in play and acts as a tailwind for the pair.”
Dhwani adds: “However, the pair needs acceptance above the 1.3000 threshold to initiate a sustained uptrend toward the November 2024 high of 1.3048. The next relevant resistance is aligned at the 1.3100 round level. Alternatively, the immediate support is seen at the 21-day SMA at 1.2863, below which the critical 200-day SMA at 1.2800 will come into play. A sustained break below this level will intensify the selling pressure, potentially leading to a test of the 1.2750 psychological level.”
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
