Pound Drops on Release of Low Consumer Price Inflation Data

Pound Drops on Release of Low Consumer Price Inflation Data
June 18, 2020

 

The British pound fell against the greenback after the release of four-year low consumer price inflation data. Additionally, the producer price index and retail price index data also missed estimates. Notably, the US housing starts data for May was also below economists’ forecasts. Still, the overall risk-off sentiment enabled the greenback to gain ground against the pound. In the past 24 hours, the GBP/USD pair declined from a high of 1.2590 to a low of 1.2470.

According to the Office for National Statistics (ONS), consumer price inflation grew 0.5% y-o-y in May, following a 0.8% increase in the earlier month and in line with analysts’ estimates.

Including owner occupiers’ housing costs (CPIH), consumer price inflation was 0.7% y-o-y in May, down from 0.9% in the earlier month. Recreation and culture contributed 0.23% to the CPIH inflation rate. The most substantial downward contributions were made by automobile fuels, and recreational and cultural goods, which recorded a drop in prices.

Excluding volatile goods, core consumer price inflation increased 1.2% y-o-y in May, following a 1.4% growth in the previous month. Economists had anticipated core consumer price inflation to increase by 1.3%.

In a separate news release, the ONS stated that PPI (producer price index) input rose 0.3% m-o-m in May, compared from a decrease of 5.5% in the earlier month. Economists had anticipated the PPI to rebound to 4.1%.

The PPI output decreased 0.3% m-o-m in May, following a decline of 0.8% in the earlier month. Economists had anticipated no change in the PPI output.

Notably, raw materials and fuels used in the manufacturing process recorded negative growth of 10% y-o-y in May, slightly better than the -10.2% growth recorded in April. Petroleum products recorded the most significant downward contribution. The retail price index increased 1% y-o-y in May, after rising by 1.5% in the earlier month, but missed the Consensus estimate of 1.2%.

In the US, Census Bureau reported an increase in building permits to 1.22 million units in May, from 1.07 million units in the earlier month. Economists had anticipated a figure of 1.23 million. The reported figure is 14.4% higher than the amended April figure of 1,066,000, but down 8.8% y-o-y. Single-family authorizations in May were 745,000, up 11.9% from the revised rate of 666,000.

Privately-owned housing starts were 974,000 units in May. It is 4.3% above the amended April forecast of 934,000, but 23.2% below the May 2019 level of 1,268,000.

Furthermore, the Census Bureau reported a slight increase in housing starts to 0.97 million in May, from 0.93 million in the earlier month. Economists had anticipated housing starts of 1.10 million.

The price chart indicates that the GBP/USD pair is facing resistance at 1.2590. The next support is anticipated only near 1.2470. The stochastic oscillator is in the bearish zone, while the currency pair is trading below its 50-day moving average. Therefore, we are anticipating the GBP/USD pair to move down in the short-term.

GBP - technical analysis - 18th June 2020

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Sammy

Sammy

Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world


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