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British  CPI is the primary gauge of consumer  inflation in  the UK  . A reading which is higher than the market forecast is bullish for the pound.

Update:  UK CPI falls to 1.6% – GBP/USD extends falls

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 be bullish for the pound.

CPI    posted a gain of 1.9% last month, close to the 2.0% target of the  BOE. This   beat the forecast of 1.6%. Little change is expected in the upcoming release, with an estimate of 1.8%.

Sentiments and levels

The markets received a rude surprise from the BOE Inflation Report, with the central bank downgrading its forecast  for wage  growth.  BOE Governor Mark Carney  sent a message to the markets  that any rate hike would be “slow and small”. Meanwhile, in the US, a rate hike is likely by mid-2015 or earlier, and increasing speculation about a move by the Fed is bullish for the dollar.  Thus, the overall sentiment is bearish on GBP/USD towards this release.

Technical levels, from top to bottom: 1.7108, 16989, 1.6823, 1.6669, 1.66 and 1.6466.


5 Scenarios

  1. Within expectations: 1.6% to 2.0%. 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: 2.1% to 2.4%: A stronger reading than predicted could push the pair above one resistance line.
  3. Well above expectations: Above 2.4%: An unexpectedly sharp rise could push GBP/USD upwards, with a second line of resistance at risk.
  4. Below expectations: 1.2% to 1.5%: A lower than expected reading could pull the pair downwards, with one support level at risk.
  5. Well below expectations: Below 1.2%:  In this scenario,  the pair could break below a second  support level.

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

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