After nearing 1.3320 on Wednesday’s European session, the Pound Sterling has collapsed further against the greenback. The drop follows the United Kingdom’s release of their Core Consumer Price Index (CPI) data. This data came out to prove inflation was going up at a much slower than expected rate by economists. This report of new data on key trends in consumer price inflation published by the Office for National Statistics focuses on the impacts on households.
For September, the headline inflation rate was 3.8% year-on-year, down from a 4.0% expectation. At the same time, underlying price pressures climbed a slight 3.7%, up from an upwardly revised 3.6% prior reading. These figures provide a stark snapshot of the UK’s economic state. They monitor the price of goods and services that families buy, watchfully looking for any shifts in prices.
Core Consumer Price Index Overview
The Core Consumer Price Index, CPI, also known as the Core CPI, is one of the most important consumer price inflation indicators in the United Kingdom. Produced based on the international best practice framework, this index serves as a measure of price stability and past economic performance. The CPI reflects the rate at which prices for a basket of goods and services increase or decrease, directly impacting the purchasing power of consumers.
Every month, the Office for National Statistics publishes this vital data, which economists and policymakers use to help identify inflation trends. The recent report indicated that monthly prices remained flat after a growth of 0.3% in August, further complicating the current economic outlook.
With UK inflation continuing to increase at a slower than-expected rate, financial analysts have expressed fears about the UK’s underlying economic conditions. These statistics play an absolutely enormous role in shaping the decisions of the Bank of England’s monetary policy directors. As such, they merit increased scrutiny as they craft the nation’s economic outlook.
Currency Market Reaction
In response to the inflation data, the GBP/USD currency pair extended its losing streak for the fourth consecutive trading day. The Pound Sterling retreated after piercing through a major resistance barrier. This dynamic area of confluence defined by the 20-day Exponential Moving Average (EMA) is close to 1.3407.
Now the weakening currency is forcing the 14-day Relative Strength Index (RSI) down, too. Now it is fast approaching a make-or-break line at 40.00. Analysts warn that a move below this level will likely signal new bearish momentum for the Pound.
Market sentiment is still on the sharks’ side as traders await developments. The August 1 low of 1.3140 has since turned out to be an important support area for GBP/USD. At the same time, the psychological resistance of 1.3500 acts as an obvious resistance barrier.
Economic Implications and Future Outlook
Beyond the market reaction, the implications of persistently lower-than-expected inflation rates are far-reaching. One thing’s for sure — economists will have to recalibrate their forecasts. They must judge how new inflationary shocks might affect the Bank of England’s interest rate policy going forward.
The good news is that inflation pressures are finally subsiding. This begs the question on how it would affect consumer spending, one of the strongest drivers of the UK economy. Continuing low inflation would likely push policymakers in a more dovish direction even without any change to Phillips. This move could slow down further hikes that are specifically meant to curb inflationary pressures.
Despite all these questions, some analysts are hanging on to a hopeful vision for how the economy will recover. Policymakers are already in the thick of political debates over how best to stabilize these markets. Finally, they highlight the importance of protecting consumer confidence in these difficult times.
“So now we’re going to have a fair deal, and I think we’re going to have a very successful meeting.” – Donald Trump