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Headline British CPI rose to an annual pace of 4.5%, exactly as  expected. GBP/USD now manages to escape from 8 month lows it dropped to prior to the release.  

While this may delay the next QE move, not all is rosy in  Britain. British trade balance disappointed with a large deficit of 8.9 billion.

Core CPI remained at 3.1%. A drop to 3% was expected. The Retail Price Index (RPI) also exceeded expectations and ticked up from 5% to 5.2%, more than an unchanged value of 5% that was predicted.

These upside surprises in Core CPI and RPI are quite marginal, but together with a tick up in headline CPI (though expected), it provides the pound a reason to recover. GBP/USD is now flirting with 1.58.

GBP/USD was struggling before the release. It dropped below the critical 1.5780 line to 7.5 month low. This came as fears grew during the European session. The safe haven dollar strengthened against most currencies. It dropped as low as 1.5761 before bouncing.

Further support is found at 1.5650, followed by 1.5550. Resistance is at 1.5820, followed by 1.5910.

For more on the pound, see the GBP/USD forecast.

Tomorrow we have the all important employment figures. Weak data could prove critical to a decision to embark more quantitative easing – a move that will likely hurt the pound.

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