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British inflation jumped above the 5% level: headline CPI jumped to 5.2%. A rise to 4.9% was expected from last month’s 4.5%. Also the other inflation figures came out stronger than expected. The report comes shortly after the decision to embark on fresh quantitative easing and makes decisions more complicated for policymakers. GBP/USD falls.

As inflation is eroding the value of the currency, the Bank of England has the opposite of expected policy: a looser policy. Together with rising unemployment, Britain’s “misery index” is quite high, and the pound suffers.

The Retail Price Index (RPI) jumped from 5.2% to 5.6% (5.4% was expected). Core CPI rose from 3.1% to 3.3% (3.2% was expected). The Monetary Policy Committee sees inflation falling later on and also sees the bad situation of the economy. Part of these rises are indeed one time events that will disappear later on. But currently, prices are rising, unemployment is rising and the economy is grinding to a halt.

GBP/USD is now at 1.5730. It dropped from around 1.5780 down to 1.5710 after the release, before recovering. 1.5706 is a strong support line. The next line is 1.5633. 1.5780 is resistance, as well as 1.5823.

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

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