GBP/USD darts higher after better October UK inflation numbers

Written by: Crispus Nyaga
November 18, 2020
  • The GBP/USD is rising today after the Office of National Statistics released UK CPI data.
  • The headline consumer price index in the UK rose by 0.7% in October.
  • Public defit rose by more than £65 billion at the end of FY 2020

The GBP/USD price is up slightly today as the market digests the latest UK inflation data. It is trading at 1.3255, which is 1.15% higher than last week’s low of 1.3110.

GBP/USD rises after better UK CPI data

UK October inflation better than estimates

Consumer prices in the United Kingdom remained under pressure at the start of the fourth quarter. According to the Office of National Statistics (ONS), the headline CPI increased by an annualised rate 0.7% in October. In September, the headline CPI in the UK rose by 0.5%.

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It was also slightly better than the median estimate of 0.6%. On a month-on-month basis, consumer prices rose by 0.0%.

In the same month, the so-called core CPI, which excludes volatile food and energy products, rose by 0.2% on a MoM basis and by 1.5% from the same point last year. The median estimate in a poll by Reuters was for a 0.1% and 1.3% increase.

Further data showed that the core PPI output rose by an annualised rate of 1.1%. This data measures the average prices received by domestic producers for their products. The PPI input dropped by 1.3% in October.

Inflation still below BOE 2% target

These numbers show that the UK is still going through low inflation as the unemployment rate continues to rise. In its most recent interest rate decision, the Bank of England said that the CPI would remain at or just above 0.5% in the fourth quarter before rising to 2% in the next two years. As a result, the bank committed not to tighten monetary conditions until that target is reached.

The UK CPI numbers came a week after the ONS released relatively strong retail sales numbers. The general sales rose by 4.9% in October, the fifth consecutive month of gains. According to the bureau, the main driver of higher sales was food, gifts, and loungewear.

Meanwhile, UK’s public borrowing is rising. Data by the statistics office showed that public sector net borrowing increasedby £35.37 billion in October. In total, the public debt now stands at more than £2.2 trillion, the highest it has been in 60 years. Sadly, this increase will continue since the government has already committed to extend the furlough program.

GBP/USD technical outlook

GBP/USD technical chart

On the four-hour chart, the GBP/USD price has been on a strong upward trend since September this year. The price reached a high of 1.3310 on November 11 and then reached a low of 1.3107 on November 13. Today, the price has moved above the 25-day exponential moving average. It is also close to the 78.6% Fibonacci retracement level.

Notably, volatility, as measured by the Average True Range (ATR) has dropped to the lowest level since September. Therefore, I expect that the pair will continue rising and possibly reach a high of 1.3173. You can take advantage of this clear price action by opening an account with one of these high leverage forex brokers.