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British  CPI is the primary gauge of consumer inflation and is one of the most important economic indicators. A reading which is higher than the market forecast is bullish for the pound.

Update:  UK inflation surprises with 1.9% – GBP/USD recovers above 1.71

Here are all the details, and 5 possible outcomes for GBP/USD.

Published on Tuesday at 8:30 GMT.

Indicator Background

Analysts consider CPI one of the most important economic indicators, and the release of the  British CPI can affect the direction of GBP/USD.  The  level of  inflation is an important component in  any decision by the BOE to raise interest rates, which would likely push the pound to higher levels.

CPI  dropped to 1.5% in May, its lowest level in almost five years. The markets are expecting more of the same in the upcoming release, with the estimate standing at 1.6%.

Sentiments and levels

The pound  remains at high levels, despite modest losses last week. US numbers have  been solid  since the awful GDP release, notably employment data. In the UK, CPI and employment numbers will be under the microscope, and these key indicators could have a significant effect on the pound’s fortunes this week. Thus, the overall sentiment is bullish on GBP/USD towards this release.

Technical levels, from top to bottom: 1.7465, 1.7375, 1.7180, 1.7108, 1.6989 and 1.6823.

 

5 Scenarios

  1. Within expectations: 1.4% to 1.8%. In this scenario, GBP/USD could show some slight fluctuation, but it is likely to remain within range, without breaking any levels.
  2. Above expectations: 1.9% to 2.2%: A stronger reading than predicted could push the pair above one resistance line.
  3. Well above expectations: Above 2.2%: An unexpectedly sharp rise could push GBP/USD upwards, with a second line of resistance at risk.
  4. Below expectations: 1.0% to 1.3%: A lower than expected reading could pull the pair downwards, with one support level at risk.
  5. Well below expectations: Below 1.0%:  In this scenario,  the pair could break below a second  support level.

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