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British CPI surprised by rising at an annual pace of 4.4%, higher than 4.3% that was expected and higher than last month’s 4.2%.  GBP/USD bounced a bit higher.

Core CPI came out at 3.1%, as expected, and up from 2.8% last month. The Retail Price Index (RPI) rose at a pace of 5%, exactly as expected and exactly like last month.

Pound dollar is now at 1.6345, up around 20 pips from the release. This is not enough to encourage the Bank of England to move on the rates and not enough for a strong move upwards. Market expectations still stand on a hike only in a year’s time.

Last month, inflation weakened to 4.2% as the economy was slowing. The next month is likely to show an ease in inflation – global oil prices haven fallen sharply at the beginning of August, so this might push the headline Consumer Price Index lower.

GBP/USD dropped before the release very gradually. It reached a peak of 1.6408 yesterday and settled at 1.6325 before the publication – a safe distance from the 1.6280 to 1.63 region. Pound/dollar was suffering from the abysmal GDP report from Germany earlier in the day – Europe’s locomotive almost came to halt, with growth of only 0.1% in Q2 2011.

Further support is at 1.62, followed by 1.6110. Serious resistance is at 1.6470, followed by 1.6550. For more on GBP/USD, see the British pound forecast.