FX & Currencies
Cable Breaks Out after Better than Expected Inflation
19 Aug 2015
Cable broke out on Tuesday, climbing more than 100 pips after UK inflation unexpectedly turned positive in July, a sign the Bank of England was still on course to begin raising interest rates early next year.
Cable bounced from an intraday low of 1.5563 to reach 1.5682, advancing 0.7% or 100 pips. The GBP/USD had earlier reached an intraday high of 1.5718. Cable is likely to face immediate resistance at 1.5730 followed by 1.5769. On the downside, initial support is likely found at 1.5547 followed by 1.5508.
UK inflation turned positive in July, but remained very low by historical standards and well below the Bank of England’s target of 2%. Annual consumer prices in the UK edged up 0.1% in July after holding flat in June, the Office for National Statistics reported on Tuesday. A median estimate of economists forecast no change from the previous month.
CPI has remained relatively flat for the past six months, as plunging oil prices have kept inflationary pressures subdued. Headline inflation turned negative in April for the first time since 1960 and could backtrack further in the coming months amid renewed pressure on energy prices.
Global benchmark Brent crude continued to backtrack on Tuesday, falling 25 cents or 0.5% to $48.49 a barrel on the ICE Futures Exchange in London. US benchmark West Texas Intermediate dipped 8 cents or 0.2% to $41.79 a barrel on the New York Mercantile Exchange. Energy prices are expected to fall further as Iran prepares to increase its crude exports.
The UK’s so-called core inflation, which strips away energy, food, alcohol and tobacco, climbed to 1.2% annually in July, a five-month high.
Separately, the ONS said UK house prices increased 5.7% in June from a year earlier, up from 5.6% in May.
While Tuesday’s data are unlikely to change the BOE’s views on monetary policy, the sharp rise in core inflation will likely keep the debate on interest rates lively for the rest of the year. The Bank’s Monetary Policy Committee voted 8-1 in favour of holding the overnight rate at 0.5% at this month’s policy meeting. MPC member Ian McCafferty was the lone vote in favour of raising the interest rate.
The August meeting was the first split vote of 2015. The last time the vote was split was in December 2014 when both McCafferty and Martin Weale voted to raise the benchmark rate by 25 basis points.
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