British consumer prices increased last month due to higher oil costs and the weakening Pound, official data showed on Tuesday. According to the Office for National Statistics, the Consumer Price Index grew 1.8% year-over-year in January, the largest increase since June 2014, compared to the preceding month's 1.6% rise. However, that was below the 1.9% market forecast as the steep fall in clothing prices offset inflationary pressures coming from food and fuel last month. On a yearly basis, the core CPI, which excludes volatile items such as oil and food, came in at 1.6%, unchanged from the prior month and behind analysts' expectations of a 1.7% gain, while the Retail Price Index advanced 2.6% from 2.5% previously, missing projections of a sharper 2.8% rise.
Furthermore, the ONS said factory gate prices grew at a faster than expected pace of 3.5% last month, the largest increase since December 2011. Input prices jumped 20.5% on a yearly basis, after rising 17% in the previous month, while output prices advanced 3.5%, surpassing the 3.2% rise market forecast. Analysts suggest that an upward pressure on inflation is likely to intensify in the upcoming months amid further depreciation of the British Pound. According to the Bank of England's latest forecasts, the inflation rate is likely to rise above 2.7% this year.
US CPI and Retail Sales most important releases today
GBP/USD retests 1.2450 support
The Cable behaved mostly according to expectations on Tuesday, as it experienced another decline, but stabilised below the immediate support area. Since the GBP/USD pair still remains in its consolidation trend, the most logical outcome today would be a rally back towards the 1.25 level or even higher. A drop lower is also possible, but with a close above the 1.2450 level, as it kept the Sterling afloat since mid-January. Moreover, the monthly PP, the 55 and the 100-day SMAs form a tough demand cluster just below the 1.2450 mark, also suggesting a strong bearish development is far-fetched. Meanwhile, technical indicators are in favour of the positive outcome.
Daily chart
Hourly chart
Traders mostly bullish
There are 60% of traders with a positive outlook towards the Pound today, but 56% of all pending orders are to sell the British currency.
A slightly less optimistic situation is observed elsewhere. For example, 54% of positions open at OANDA are currently long. This is more than the share of shorts (46%), barely sufficient for the sentiment to be called bullish. Meanwhile, sentiment at Saxo Bank is also bullish, with 61% of traders now being long and the other 39% being short the Sterling against the US Dollar.
Spreads (avg, pip) / Trading volume / Volatility
Traders expect the Cable to keep falling
By the end of the next three months traders expect the Cable to rise above the 1.22 major level, as 56% of survey participants believe so. While the current price is around 1.25, the average forecast for May 14 is 1.2420. The 1.20-1.22 interval is now the most popular price interval, having 15% of the votes, while on the second place is the 1.30-1.32 price range, with 13% of poll participants choosing it. Furthermore, the 1.14-1.16 interval was chosen by 12% of the voters.