The latest in our series of previews looks at the UK CPI/RPI/PPI data all due out at 08.30 GMT
Last month saw a stronger than expected headline CPI at -0.2% with core CPI also firming as I reported here
The release saw a quick move up in GBP but the clothing sector benefitted from some weather-friendly sales and that is unlikely to be the case this time
The latest BOE inflation report highlighted that the fall in energy prices would bear down on inflation until mid-2016 at least somewhat dampening Carney's previous forecast of a ramp higher before year-end. The dovish report gave GBPUSD a kick lower from 1.5612 to 1.5538 as I reported here
There has been much talk lately about the impact of a strong pound on inflation and the BOE highlighted it again in their report saying that GBP appreciation to push down inflation for some time to come, poses down side risk to near-term path
Since then MPC member Karen Forbes has suggested a new approach to the exchange rate factor that puts more focus on the underlying reasons why the fx rate moves in the first place. Ryan reported her recent speech here where she said " There's substantial challenges regarding how sterling movement will affect inflation in the future"
The topic is timely as I met with our guest economist John Hearn at the week-end and our conversation, outside of a woeful football game, was drawn to the impact of exchange rates on inflation and he was adamant that it made little difference
So here's what the market is expecting today and supports my view of a softer reading:
The market will have priced this in so the risk will be to the topside but I expect cable rallies to be sold into 1.5500-10 still with EURGBP demand into 0.7285 should we get any sizeable reaction
As always trade what you see and don't forget that traders will be cautious of extending books too far in front of the FOMC
GBPUSD currently stuck around 1.5426 after yesterday's dip below 1.5380. EURGBP similarly comatose around 0.7330
