Economic Events Outlook, Feb 13: US & UK Releasing CPI, What to Expect?

Good morning, traders.

The financial markets remained volatile during the Asian session, especially after the release of New Zealand monetary policy. The RBNZ left the Official Cash Rate (OCR) unchanged at 1.75% while keeping the upcoming sentiment more neutral than dovish. RBNZ expects to keep the OCR at this level through 2019 and 2020.  

Today, the fundamentals side is stuffed with a series of inflation data from the UK and the US. Therefore, the GBP and USD related currency pairs are likely to exhibit massive volatility during the London and New York sessions. In this update,  I will be discussing expectations from the US and UK inflation figures to help you prepare beforehand.

Economic Events Outlook

Before we begin, let us recall that the Consumer Price Index (CPI) is one of the most valued economic events and it shows a change in the price of goods and services from the perspective of the consumer. It’s an important measure to gauge changes in purchasing trends and inflation.

Great Britain Pound – GBP

CPI y/y – The Office for National Statistics will be releasing the UK’s inflation figures at 9:30 (GMT). Previously, the UK Inflation rate fell dramatically from 2.3% to 2.1% in January 2019. In fact, it’s been dropping consistently since September 2018 from 2.7%.

Economists are expecting UK CPI figures to show another drop from 2.1% to 1.9% in February 2019. As we all know, the British economy is struggling with price stability and one of the major reasons is the ongoing Brexit turmoil and slowdown in global economic growth.  A drop in oil prices and global economic slowdown can trigger another negative rate this week, but let’s see.

US Dollar – USD

CPI m/m – The inflation figures are highly correlated with labor market figures as it’s all about consumption. People usually consume more when they have a job or when their business is booming. Looking at the US labor market report for January 2019, the figures were mixed. The US market added 304K jobs which are significantly higher than the forecast of 165K. Nevertheless, the unemployment rate rose from 3.9% to 4% and the average hourly earnings plunged to 0.1% from 0.4% beforehand.

Here’s the thing, the drop in average hourly earnings could diminish people spending pattern and can cause a drop in demand, ultimately lowering the inflation rate.

Economists are expecting a slight jump in the US inflation figures , from -0.1% to 0.1%. The core inflation is expected to remain unchanged at 0.2%. So, the drop in inflation is likely to trigger sell-off in the US dollar and stock markets, while it can extend support to gold.

Good luck, and stay tuned to FX Leaders for more updates and trade ideas.