UK inflation overall

The headline CPI inflation which excludes volatile food and energy goods, is anticipated to improve slightly to 6.4% YoY during the indicated month, from 6.3% previous readouts, bringing CPI inflation back to a 30-year high of 10.0% versus 9.9%. In terms of the monthly numbers, the CPI may decline to 0.4% from 0.5% earlier.

It's vital to note that the Producer Price Index (PPI) has been highlighted as a key driver for the direction of the GBP/USD exchange rate as a result of recent pressure on wage prices and a positive jobs report.

Economic impact on GBP/USD

As you can see, the reaction will probably stay within a 20-pip range in variations up to + or –2, yet in some instances, if the deviation is significant enough, it may cause movements of more than 60–70 pip.

In advance of the important UK inflation data, GBP/USD declines from a five-week-old declining resistance level near 1.1350, preferably about 1.1330. By doing this, the Cable pair captures the market's hesitancy in the face of a dearth of significant data or events as well as its apprehension ahead of the critical CPI number.

GBP/USD is likely to cross the immediate trend line resistance and surge towards the monthly high near 1.1500 should the inflation numbers manage to maintain their strength on the MoM in addition to posting the multi-year high YoY numbers. Alternatively, given the market's confidence and the political drama in the UK, retreat moves may have another chance to reverse.