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UK CPI could Change Market Sentiment Toward Sterling

H.S. Borji
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UK CPI could  Change Market Sentiment Toward Sterling

Tuesday’s inflation report kicks off an active week for the British pound, which retraced most of its losses Monday after falling to a session low of 1.6697 US.

UK inflation eased to 1.7 percent annually in February, the Office for National Statistics reported last month. Consumer inflation in January fell below the Bank of England’s 2 percent target for the first time since 2009, giving the central bank more room to maintain record low interest rates.

Consumer inflation is expected to have eased to 1.6 percent annually in March, according to a broad consensus of market analysts. On a monthly basis, consumer inflation is expected to have risen 0.2 percent, following a gain of 0.5 percent in February.

The British pound will receive a strong push in the unlikely event CPI rises above 1.9 percent. If consumer inflation eases to 1.3 percent or below, sterling is likely to face a broad sell off. However, if history is any indication, even a slight deviation from the consensus’ inflation expectations could trigger volatility for the British pound.

The Office for National Statistics will report on employment and earnings data Wednesday. Average hourly earnings including bonus are expected to have risen 1.8 percent in the three months through February, marking the first time in nearly five years wages were above the standard of living.

As of North America’s afternoon session the GBPUSD pair was trading at 1.6728, nearly unchanged from the previous close. The EURGBP pair was down 0.2 percent to 0.8262.

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