UK Consumer Price Index Declines To 3-year Low

UK Consumer Price Index Declines To 3-year Low
November 14, 2019


The yen rose against the British pound after the release of better-than-anticipated bank lending and PPI data from Japan. The pound’s decline was also aided by the drop in the UK’s consumer price inflation to its lowest level in three years. From a high of 140.252, the GBP/JPY pair declined to a low of 139.44 in the past 24 hours.

According to the data released by the Bank of Japan (BoJ), producer price index (PPI) rose 1.1% in October, up from 0% in the earlier month. Economists had anticipated the PPI to reach 1.1%. However, on a y-o-y basis, the PPI declined by 0.4%.

Notably, on Tuesday, the Japan Machine Tool Builders’ Association (JMTBA) reported a 37.4% drop in the machine tool orders in October, worse than the median estimate of -30%. Last month, machinery orders fell 2.9%, dropping below the anticipated 1.1% gain.

Bank lending is on the rise in Tokyo, mainly due to negative interest rates and accommodative monetary policy. In October, according to the BoJ, the value of loans increased 2% compared to the same period last year.

Japanese Prime Minister Shinzo Abe had recently suggested his cabinet stitch together a package of stimulus measures to tackle external aspects, force majeure, and a likely economic decline after the 2020 Tokyo Olympics. In the meantime, BoJ Governor Haruhiko Kuroda addressed the Parliament and the meeting highlighted the central bank’s fiscal and monetary policy that is supposedly linked to the Modern Monetary Theory (MMT).

According to the UK Office for National Statistics, the consumer price index increased 1.5% y-o-y in October, following a 1.7% rise in the earlier month. Economists had anticipated the inflation rate to decline to 1.6%. The reported figures were the lowest since November 2016, when it touched 1.2%.

The ONS spokesman stated that a decrease in the energy price was one of the reasons for the drop in inflation. “A fall in utility prices due to a lowering of the energy price cap helped ease inflation in October. However, this was partially offset by rising clothing prices.”

Gas and electricity prices for households dropped 8.7% and 2.2%, respectively.

Core inflation remained unchanged at 1.7% in October, meeting economists’ expectations.

According to the Bank of England, inflation, which is currently below 2%, will drop to roughly 1.25% by spring 2019. Thereafter, inflation is anticipated to increase steadily to cross above the target level of 2% target.

The ONS also reported that output price inflation declined to 0.8% in October, from 1.2% in the prior month. Economists had anticipated a 0.9% rise in factory-gate prices. Input prices declined 5.1% y-o-y following a 3% drop in the earlier month. The drop was primarily led by a decline in crude oil prices. Economists had anticipated input prices to decline by 4.6%.

The economic data supports a decline of the GBP/JPY pair in the short-term.

The GBP/JPY pair has started declining after facing resistance at 140.25. The next major support exists at 138.63. The stochastic oscillator is also in the bearish region. As a result, we can anticipate the currency pair to remain in a downtrend in the near-term.

JPY - technical analysis - 14th Nov 2019

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Janine is our editor for related stock market news. Andrew and Janine will be focusing on providing the latest trends and where the next hit could be

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