Britannia rules again, not

Posted Tuesday, August 16, 2016 by
Skerdian Meta • 2 min read

Keep your chins up Brits, the inflation numbers are here to save you from the Brexit doomsday. The UK inflation numbers just hit the screens and they look GOOD. The annualized consumer inflation (CPI) which is where the BOE (Bank of England) base their interest rate decision, came at 0.6% against 0.5% expected. The price for the everyday consumption goods such as food and hygiene products beat the expectations at 1.9% and the core inflation is just a tick lower at 1.3%, but still much better than the rest of the developed world probably.

But, that is the inflation data for the whole year where one month (after Brexit). The CPI for July came out at -0.1%. The surveying firm ONS said that the transport costs drove the inflation higher. If we look at July only, then the holiday season has that effect of hiking the prices for air travel. If we look for the entire year up to date, then the increase in the oil prices from around $26/barrel to above $50 has been the main factor for the higher inflation in the UK. Either way, it´s not a good report. 

You wouldn´t think, but it gets gloomier if you throw in the Brexit effects. The CPI numbers are always a forex market mover but if we are to interpret the economic data correct, the inflation numbers from the UK will be misguiding after the Brexit referendum. Do you know why? because the GBP has lost about a fifth of its value and since the UK is a net importer of goods and raw materials the higher import costs will drive the prices higher, won´t they? The BOE (Bank of England) warned the market for this.  

To me, this jump in GBP/USD looks more like a dead cat bounce

So, the point is, this kind of inflation is not the right kind of inflation, or better say, this pick up in inflation doesn´t come from a pick up in the economic activity. The consumer demand has not increased enough to justify the higher inflation. So, this is just a bubble waiting to explode. The GBP shot about 70 pips higher but has lost about 20 pips right now. We are waiting for a better price higher, maybe at 1.3030-50 to open a long term sell forex signal. This is a good opportunity to open a fade forex trade on a fake positive data. 

Check out our free forex signals
Follow the top economic events on FX Leaders economic calendar
Trade better, discover more Forex Trading Strategies
Related Articles
The USD declined immediately after inflation numbers mostly missed expectations, but reversed and ended up higher, showing buying pressure
2 months ago
0 0 vote
Article Rating
Notify of
Inline Feedbacks
View all comments