Summary:

• The UK CPI numbers for October come in at below expectations
• Further easing in inflation pressure undermine rationale for another BoE rate hike
• EURGBP moves towards highs from October

The first important UK data scheduled for this week disappointed which put additional pressure on GBP. The CPI figures for October are still relatively high although given that BoE raised rates in November, they do not argue for further tightening in monetary policy. 

The headline CPI for October came in at +3.0% yoy (the same level as in September) missing consensus calling for +3.1% yoy. The core gauge also surprised to the downside: +2.7% yoy vs +2.8% yoy expected. It’s also worth mentioning that month-over-month measure dropped to 0.1% from 0.3%. A miss in inflation means that traders will believe it’ll be a long time before the BoE raises rates for the second time.

 CPI still are significantly above the BoE inflation target but the Bank is unlikely to raise rates once again. Source: Macrobond, XTB Research

A breakdown of today’s data shows that rising prices still steams from weaker exchange rate of GBP. Inflation in goods highly depends on external factors and it once again accelerated while inflation of services sector little changed. This is the biggest component of the UK economy and lack of signs of rising prices of services may mean that wages remain subdued. Investors now should focus on retail data – this reading will be out tomorrow. 

 Prices in import still increase which undermines the purchasing power of British consumers. Source: Macrobond, XTB Research

GBP weakened in the initial response to the release. EURGBP on the daily interval drew a double-bottom setup which potential target lies at 0.9213 handle. Nevertheless, bulls would have to break a resistance at 0.8982 first – this zone was respected a few times this year. The rising momentum is significant, thus such scenario is still on the cards.

 EURGBP is moving towards resistance at 0.8982. Source: xStation5