That’s the thing about inflation, it tends to trend and is not easily swayed once it gets going. We hit the BOE 2% target last month for the first time since I had hair and it hasn’t stopped going. The main worry was that the core CPI fell to 1.6% from 1.7% in Dec and below the 1.9% expected.
We’re not in the same boat as Europe and the lower inflation may do some good to our economy by lowering input costs meaning we can be more competitive. Certainly the PPI numbers will be welcome with output prices rising as input prices fell.
Despite the drop we should only start to worry if we cross the 1% threshold. With our economy still doing reasonably well there’s plenty of inflationary components that could pick up (wages) which will steady the ship.
Cable has taken a knock but it was fairly muted and much was priced in. That was stage one of this weeks data and with the big labour report tomorrow we could have a different story. My hunch was for a lower CPI number today and for tomorrow I see the possibility of another fall in claims but maybe not as much as expected.
In the meantime Mike has guided you very well through the levels today with 1.6650 holding on the downside. 1.6740/45 is likely to provide some resistance and a break will have us looking for 1.68 and the Oct 2013 trendline once again.
GBP/USD h4 chart
