14 Jan 2014
GBP/USD sheds post-CPI data gains
FXstreet.com (London) - GBP/USD has trimmed gains on lower-than-expected UK CPI numbers, bringing inflation in line with the Bank of England’s target rate for the first time since November 2009.
Inflation held down by fall in food and service prices
The fall in inflation from 2.1 percent to 2.0 percent was heavily driven by a drop in food price inflation, down from 2.8 percent in November to 1.9 percent in December. Service price inflation also slowed to 2.4 percent.
The declines in food and service prices offset the effects of utility bill increases, but much of the effects may have been pushed into January’s data.
Producer price inflation fell 1.2 percent month-on-month, helped by a strong sterling importing some deflationary pressure. While inflation continues to outstrip wage increases, putting pressure on households, increased UK productivity and economic optimism bodes well for upward wage pressure and consumer spending support.
Carney may be dovish for longer
The fall in inflation will ease calls for an earlier rise in the Bank of England base rate, currently held at a record-low 0.5 percent. However, it may allow BoE governor Mark Carney to remain dovish for longer, raising the possibility of lowering the threshold at which the central bank will consider raising rates from 7 percent unemployment to 6.5 percent.
GBP/USD is currently trading at USD1.6408, falling from gains made immediately following the UK CPI data. The pair hit a high of USD 1.6448 and remains up 0.12 percent from the opening price of USD 1.6386.
Inflation held down by fall in food and service prices
The fall in inflation from 2.1 percent to 2.0 percent was heavily driven by a drop in food price inflation, down from 2.8 percent in November to 1.9 percent in December. Service price inflation also slowed to 2.4 percent.
The declines in food and service prices offset the effects of utility bill increases, but much of the effects may have been pushed into January’s data.
Producer price inflation fell 1.2 percent month-on-month, helped by a strong sterling importing some deflationary pressure. While inflation continues to outstrip wage increases, putting pressure on households, increased UK productivity and economic optimism bodes well for upward wage pressure and consumer spending support.
Carney may be dovish for longer
The fall in inflation will ease calls for an earlier rise in the Bank of England base rate, currently held at a record-low 0.5 percent. However, it may allow BoE governor Mark Carney to remain dovish for longer, raising the possibility of lowering the threshold at which the central bank will consider raising rates from 7 percent unemployment to 6.5 percent.
GBP/USD is currently trading at USD1.6408, falling from gains made immediately following the UK CPI data. The pair hit a high of USD 1.6448 and remains up 0.12 percent from the opening price of USD 1.6386.