GBP/USD targets 1.2640 after upbeat UK consumer inflation data

on Jul 15, 2020
  • The GBP/USD pair spiked after the ONS released upbeat consumer inflation data.
  • The headline CPI rose to 0.6% in June while the core CPI rose to 1.4% as the country reopened.
  • Factory gate prices also made a modest recovery in June with PPI input rising by 2.4%.

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The GBP/USD pair rose slightly as traders reacted to the better-than-expected consumer inflation data from the UK. The pair is up by 0.21% and is trading at 1.2580, which is significantly higher than yesterday’s low of 1.2480.

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GBP/USD rises after strong inflation data

UK inflation rose in June

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Consumer prices rose slightly in June, according to the Office of National Statistics (ONS). The numbers showed that the headline Consumer Price Index (CPI) rose to 0.6% in June from the previous 0.5%. Analysts polled by Reuters were expecting the price to rise by 0.4%. The figure rose by 0.1% on a month-on-month basis.

The so-called core CPI, which measures the change in consumer prices less food and energy, rose to 1.4% from the previous 1.2%. This was higher than the consensus estimates of 1.2%. On a MoM basis, the price rose to 0.2% from the previous 0.1%.

According to the ONS, the biggest contributor to higher prices was recreation and culture followed by clothing and footwear. It is worth noting that the two contributors were among the most affected by the lockdown implemented by the government because they are viewed as being non-essential. Other main contributors were health, transport, and housing and household services.

On the other hand, the biggest laggards in June were food and non-alcoholic beverages, alcohol and tobacco, and restaurants and hotels.

UK producer price index improves

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The GBP/USD also rose in response to the upbeat producer price index (PPI) data. This number measures the changes in the prices of goods that are bought and sold by UK manufacturers.

According to the ONS, output inflation fell by 0.8% in June, which was up by 0.4 points from the previous decline of 1.2%. That was the third consecutive month of negative output following 45 months of consecutive growth. On a MoM basis, the inflation rose to 0.3% from negative 0.2% in the previous month.

The biggest downward contributor to the number was petroleum, which dropped at an annualised rate of 20.5%. Chemicals and pharmaceuticals also declined. On the other hand, the biggest contributors were tobacco and alcohol and transport equipment.

Meanwhile, the so-called PPI input declined by 6.4% in June, up from 5.4% in the previous month. This means that June was the fifth consecutive months of negative rates. Nonetheless, it was the second consecutive month that the rate was negative.

These numbers came a day after the ONS released mixed GDP, industrial, and manufacturing production data. The numbers showed that the economy started to improve in May as the country started to ease movement. Also, these numbers are in line with the upbeat UK manufacturing and services PMIs released early this month.

GBP/USD technical outlook

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GBP/USD technical forecast

On the four-hour chart, the GBP/USD pair is making the fifth consecutive gains. The price is above 1.2481, which is the lowest point yesterday. It is also above the 50-day and 100-day exponential moving averages and slightly below the 23.6% Fibonacci retracement level. Therefore, I expect the pair to continue rising as bulls target the 23.6% retracement at 1.2640. On the flip side, a move below the 50-day EMA at 1.2552 will invalidate this thesis.

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