Fresh CPI data from the UK is scheduled for release tomorrow at 10:00 GMT+4. Looking at the potential impacts on the Pound Sterling, let’s analyze the historical data presented in Figures 1 and 2.
Figure 1 presents UK CPI (YoY) data from December to April 2023. Meanwhile, Figure 2 shows the percentage change observed in the GBP/USD pair following the release of each inflation reading.
In April 2023, the GBP/USD pair witnessed a 0.35% increase on the 1-hour time frame (Figure 2) following a higher-than-expected inflation reading of 10.1% (Figure 1).
When analyzing the data from Figure 1 and Figure 2, we notice a consistent pattern. Whenever the inflation data surpasses expectations, there is a corresponding rise observed in the % change of the GBP/USD pair.
This relationship points towards a high probability that when inflation exceeds expectations, markets usually associate this with a higher probability of rising interest rates, leading to an increase in the GBP/USD pair and vice versa.
As per Forex Factory data, inflation in the UK is expected to decline from 10.1% to 8.2% in tomorrow’s reading, indicating easing inflationary pressures.
With inflation expected to drop below double digits, Wednesday’s data could spell some good news on the UK’s inflation front. But based on the analysis above, an expected or below expected reading could be bad news for the pound.
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Figure 1: U.K. CPI (YoY), Forexfactory.com
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Figure 2: Recent GBP/USD pair percentage change in price, 1H timeframe, Tradingview.com
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