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The headline Consumer Price Index in the UK dropped to 2% – exactly in the BOE mandate. It was expected to remain unchanged at 2.1% on an annual level. The Retail Price Index (RPI) stands at 2.7%, as expected. Core CPI was predicted to remain unchanged at 1.8% but it dropped to 1.7%. The miss in the headline CPI certainly weighs on sterling.

GBP/USD was on the rise towards the publication, reconquering the 1.64 level and reached 1.6446. It is now falling back towards the round number of 1.64.

The pound has been on the back foot earlier in the week, losing the gains it enjoyed after the weak US Non-Farm Payrolls.

PPI Input was expected to drop by 0.2% after -0.7% last time. It surprised to the upside by rising by 0.1%. PPI Output carried expectations for a rise of 0.2% and it remained flat.The HPI was expected to rise from 5.5% to 5.9% but rose by only 5.4%.

Low inflation enables the Bank of England to maintain a low interest rate for a longer time. This in turn allows the economy to recover at a better pace.

The pound has enjoyed gains against the euro in the previous week, but it now lost momentum against the common currency. In GBP/USD, 1.6360 serves as support, and 1.65 as resistance.

For more, see the Pound dollar forecast.