British Pound edges up within range following hotter UK inflation data

GBP/USD ticks up above 1.3550, but remains within the weekly range below 1.3570.
UK inflation accelerated, in line with market expectations, in July.
Investors are wary of selling US Dollars, ahead of the release of the Fed's latest meeting minutes.

The British Pound (GBP) ticked up against the US Dollar (USD) on Monday, following the release of UK inflation data. The GBP/USD pair has returned to the mid-range of the 1.3500s on Wednesday, trading a few pips above 1.3550 at the time of writing, although it remains trapped within previous days’ range, below the 1.3570 resistance area.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Data released by National Statistics on Wednesday revealed that UK inflation accelerated in line with market expectations in July. UK's Consumer Price Index (CPI) grew at a 0.3% rate on the month and 2.9% year-over-year (Y-o-Y) from 0.1% and 2.6% respectively last month. The Core CPI grew at a 2.6% Y-o-Y rate, unchanged from the previous month, against the market consensus for a downtick to 2.5%.

Apart from that, the Input Producer Prices Index (PPI) cooled beyond expectations while the Output PPI remained steadier and retail prices grew at their fastest pace since March.

UK employment figures disappointed on Tuesday

On Monday, UK employment data showed mixed figures. The ILO Unemployment Rate remained steady against expectations of a slight decline, employment growth slowed down, while, on the positive side, the number of jobless claimants declined unexpectedly. Wage growth accelerated after three months stalled, but the Pound ticked down against most of its peers.

Economists at ING assess that there was "nothing particularly earth-shattering in the latest UK jobs figures," which, in their opinion, does not alter the view that "the jobs market remains cool, and wage pressures are fairly minimal." The analysts assess that these figures give "little impetus for the Bank of England to hike rates this year."

In the US, the focus on Wednesday is on the minutes of the July Federal Open Market Committee (FOMC) meeting, which left interest rates on hold amid a divided committee, and left investors wondering about the Federal Reserve’s (Fed) near-term monetary policy outlook.

Economic Indicator

Consumer Price Index (YoY)

The United Kingdom (UK) Consumer Price Index (CPI), released by the Office for National Statistics on a monthly basis, is a measure of consumer price inflation – the rate at which the prices of goods and services bought by households rise or fall – produced to international standards. It is the inflation measure used in the government’s target. The YoY reading compares prices in the reference month to a year earlier. Generally, a high reading is seen as bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.

Why it matters to traders?

The Bank of England is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI) at around 2%, giving the monthly release its importance. An increase in inflation implies a quicker and sooner increase of interest rates or the reduction of bond-buying by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price rises indicates looser monetary policy. A higher-than-expected result tends to be GBP bullish.

Economic Indicator

Core Consumer Price Index (YoY)

The United Kingdom (UK) Core Consumer Price Index (CPI), released by the Office for National Statistics on a monthly basis, is a measure of consumer price inflation – the rate at which the prices of goods and services bought by households rise or fall – produced to international standards. The YoY reading compares prices in the reference month to a year earlier. Core CPI excludes the volatile components of food, energy, alcohol and tobacco. The Core CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.