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The British Consumer Price Index eased to an annual pace of 4%, significantly weaker than expected . Early expectations stood on an unchanged pace of 4.4%. GBP/USD is losing ground as the rate hike could be pushed back.

Also other related figures fell below expectations: Core CPI fell from 3.4% to 3.2%. The Retail Price Index (RPI) dropped to 5.3% from 5.5%.

GBP/USD made  sharp immediate drop from 1.6320 to 1.6240 at the time of writing, falling below the 1.6280 – 1.63 support region.

CPI in the UK is above the government’s 1-3% target for a very long time. These inflationary pressures, originating mostly from “imported” rises in commodity prices, have also trickled to core prices.

Last week, we saw another leap in producer prices, a leap that raised expectations for the CPI release.

These prices put a lot of pressure Bank of England to act by raising the interest rate. Already 3 members out of 9 in the Monetary Policy Committee have voted recently for raising the interest rate, currently at the rock bottom low of 0.50%.

But the other 6 members, including governor Mervyn King, feel that the economic situation is fragile, and that a rate hike will hurt the economy that is trying to recover. Just last week, the MPC decided to leave rates unchanged once again.

This takes pressure off, at least for some time.

GBP/USD Relatively Weak

Cable pushed to higher levels last week – it managed to cross the 1.64 line, but couldn’t break above the next, and rather close line of 1.6450. Another attempt early this week failed as well.

Towards the release, Pound/Dollar traded around the support region of 1.6280 – 1.63. Levels above are 1.64, 1.6450 and 1.6515. Below, we have 1.6110 and 1.60.

For more levels, analysis and upcoming events (such as tomorrow’s job figures), see the  GBP/USD Forecast.

In the past few weeks, other currencies have rallied against the US dollar: this includes commodity currencies – the Canadian, Australian and New Zealand dollar, and also the Euro and the Swiss franc. The pound also made some gains, but they were very limited in comparison with the other currencies.

In other British news, the trade balance figure was a positive surprise – Britain’s trade deficit squeezed to 6.8 billion, much less than 8.1 that was expected and better than last month’s 7.8 billion (revised downwards from 7.1 billion).

Updates: GBP/USD has stabilized around 1.6250. And, this drop came despite the fact that this number was leaked.