We’ll get the latest UK inflation update on Wednesday, which has had an impact on the BoE’s and British Pound’s monetary policy decisions recently.
Check out all the important data to consider before putting together your latest trading idea!
Focus on the event:
UK inflation updates: consumer prices, producer prices
When will it be released:
May 24, 2023, Wed: 6:00 a.m. BST
Use our forex market hours tool to convert GMT to your local time zone.
Expectations:
UK CPI annual rate: 8.5% yoy vs. 10.1% yoy prior
UK CPI Monthly: 1.0% m/m exp vs. 0.8% m/m prior
UK Core CPI Annual Rate: 6.1% YoY vs. 6.2% YoY
UK PPI annualized entry: 5.2% yoy vs. 7.6% yoy prior
UK PPI Annual Output Rate: 5.9% YoY vs. 8.7% YoY
Related data since the last data event/release:
Arguments pointing to a possible rise in inflation / the rise of the pound sterling
Global/CIPS UK Services PMI for April: 55.9 vs. 52.9; “A combination of strong demand and rapidly increasing business expenditures has led to a faster rate of inflation-laden prices.”
Nationwide: UK house prices rose 0.5% month over month in April, the first increase in eight months. YoY growth improved from -3.1% to -2.7%.
Britain’s BRC Shoprice rose 15.7% in April, and food inflation accelerated to 15.7% from 15% in March.
Arguments pointing to the possibility of a decrease in the rate of inflation / a fall in the pound sterling
UK Global Manufacturing PMI/CIPS for April: 47.8 vs. 47.9 in March; “The rates of increase in average input costs and output charges fell in April, falling to their lowest levels in 35 and 28 months, respectively.”
Real estate website Rightmove: Average asking prices for properties rose 0.2% month-over-month in April, less than the 1.2% gain seen at this time last year.
The number of claimants in the UK increased by 46.7k against the expected figure of 31.2k in April, adding to the previous rise in unemployment of 28.2k; Unemployment rate increased to 3.9% vs. 3.8% expected/previously
Previous issues and the impact of the risk environment on the pound sterling
April 19, 2023
GBP pairs overlay: 1-hour forex Planned by TV
Action / Results:
UK Core CPI for March fell to 10.1% yoy from 10.4% yoy in February vs estimated slowdown to 9.8% UK Core CPI increased from 5.8% yoy to 6.2% yoy Annual vs. the estimated rate of 6.0% p.a.
The British pound jumped roughly between 0.30% to 0.50% against the majors on the event, and was able to hold on to those gains through the Wednesday and Thursday session, despite the broad risk-off environment.
Risk Environment and Internal Market Behaviors:
Risk sentiment was broadly negative during the week as fresh global data indicated higher odds that central banks will maintain tight monetary policies to fight inflation.
March 22, 2023
GBP pairs overlay: 1-hour forex Planned by TV
Action / Results:
UK core CPI jumped from 10.1% to 10.4% yoy in February vs expected drop to 9.9% UK core CPI jumped from 5.8% to 6.2% yoy in February vs expected drop to 5.7 %.
The British Pound jumped roughly 0.05% to 0.50% against the majors on the event, a relatively mild reaction, likely due to traders taking quick profits or putting them back on the BoE statement that was to come just a day later.
Risk Environment and Internal Market Behaviors:
Risk sentiment was generally positive this week, generally reacting to positive news (eg UBS acquired Credit Suisse, central banks supported USD liquidity) on the back of negative banking sector events that dominated headlines in March. Risky assets rose while the dollar and gold spent most of the week in the red.
Price action odds:
Possibilities of feeling risky:
Developments in the US debt ceiling deal story are likely to dominate broad risk behaviour. After what appeared to be a decision coming at the end of last week, we are back in a high level of uncertainty as officials gather again to try to navigate the latest hurdles.
Until a deal is struck (or if talks break down and default seems certain), price behavior is likely to remain choppy as it has been throughout May, leading to what could be an explosive breakout of volatility when we finally see a resolution to this story.
Aside from the US debt ceiling story, the next potential catalyst for widespread risk appetite will be the latest round of Global Business Survey updates. This will give traders an up-to-date look at whether or not rates of price inflation and employment conditions are really leading the way around the world.
Scenarios for the British pound:
Basic scenario:
If overall UK inflation data comes out in line with expectations or lower, odds rise that the British pound could see selling pressure as odds rise that the BoE will pause on policy tightening, or at least push BoE members to highlight peak inflation conditions. in the coming weeks.
Prices tend to consolidate prior to this event, making a potential break-down a setup to watch out for if this event scenario continues. The odds of a break-down rise increase if the GBP trends or heads higher before the event.
In this scenario, the chances of shorting the Sterling should be viewed in more detail, and if risk sentiment tends to be negative due to negative developments in the US debt ceiling, then the Japanese Yen, US Dollar and Swiss Franc could be the best options to trade against in the short term.
Alternative scenario:
If the UK inflation data surprises traders with a higher-than-expected/previous reading (a scenario we’ve seen in the past), odds rise that the British pound could see some buying pressure as expectations are likely to rise that the Bank of England may have to keep monetary policy tight.
And if sterling prices were consolidating before the event, then a break-up scenario is the one to look out for, especially if there was a bearish bias on sterling before the data was released.
In this range of scenarios, and if the overall risk sentiment is negative, the chances of buying the GBP might be better against the USD, but don’t leave the Yen and CHF out of check. The interest rate divergence is wide enough with these two currencies to attract some sterling buyers in this alternate scenario.