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UK CPI Data Mislead Markets Today

This morning at 2 am Eastern Time, the Office for National Statistics reported the latest monthly round of Consumer Price Index (CPI) and Core CPI increases within the United Kingdom’s economy. Annual CPI, which had been forecasted to hit 10.7%, instead jumped by an astonishing 11.1%, making for another multidecade high; annual Core CPI also surpassed expectations, reaching 6.5% instead of the anticipated 6.4%. Because higher-than-expected inflation numbers tend to prompt central banks to raise interest rates to cool their respective economy in response, the Pound rose on the news accordingly, with traders welcoming the bullish indicator. However, it seems quite plausible that the UK CPI data mislead markets today, because these high figures are not due to traditional economic overheating.

A more fitting target for the blame is the slew of supply side issues stemming from the wartime energy crisis and clunky access to import commodities, driving up food and gas prices. This is why Core CPI in the UK has thus far only increased by a little over half that of CPI, and why the UK’s GDP is contracting, not expanding. These structural issues cannot be resolved merely by a central bank restricting demand vis-à-vis interest rate hikes; rather, either some combination of domestic production and trade must be reconfigured, or many of these tragic conditions must simply be endured, even in the form of stagflation. Whatever comes to pass, this particular kind of high inflation is ominous, and may perhaps be more appropriately filed as bearish for GBP upon a closer look.

Two Potential Pairs to Sell

For those who are looking for opportunities to short the Pound, the following two pairs are viewed favorably for GBP bears by the EdgeFinder, A1 Trading’s handy market scanner. They are listed below with their respective ratings, signals/biases, and corresponding charts. GBP/NZD is perhaps especially worth watching, as the Kiwi Dollar displays impressive fundamentals.

1) GBP/NZD (Earns a Score of -8, or a ‘Strong Sell’ Signal)

UK CPI Data Mislead Markets Today
UK CPI Data Mislead Markets Today

2) GBP/CHF (Earns a Score of -3, or a ‘Sell’ Signal)

UK CPI Data Mislead Markets Today
UK CPI Data Mislead Markets Today
New UK PM, New Fundamentals

The next Prime Minister of the United Kingdom has been decided: Rishi Sunak, former Chancellor of the Exchequer in Boris Johnson’s administration, has won the ruling Conservative Party’s leadership election by default. Having previously sounded the alarm against Liz Truss’ debt-financed tax cuts while running against her in the last leadership race, his efforts to avoid such fiscal stimulus amid historic inflation rates proved prescient. The Pound jumped in value accordingly upon the news of his win; financial markets appear to be hoping that with the new UK PM, new fundamentals will follow.

Is GBP Bearish Momentum Over?

It seems plausible that GBP could experience increased buying pressure over the short term, particularly in response to a PM that veers away from money-printing during high inflation. However, the core problems plaguing the Pound and the British economy remain regardless: a timidly hawkish Bank of England, the looming energy crisis, messy trade, and impending stagflation are not things that a new PM can fix single-handedly. In terms of fundamentals, it currently seems more likely that the GBP bearish trend will ultimately continue, perhaps even falling below parity with USD.

Best Pairs to Watch

For those interested in shorting the Pound, there are no pairs currently ranked favorably for GBP bears by the EdgeFinder, A1 Trading’s handy market scanner; this is fitting, considering the likelihood of GBP finding short-term bullishness. However, if GBP bearishness continues upon encountering fresh resistance, the following two neutral pairs currently lean less in the Pound’s favor, which traders can consider for the future. They are listed below with their respective ratings, signals/biases, and corresponding charts.

1) GBP/USD (Receives a -2, or ‘Neutral’ Signal)

New UK PM, New Fundamentals
New UK PM, New Fundamentals

2) GBP/NZD (Receives a -2, or ‘Neutral’ Signal)

New UK PM, New Fundamentals
New UK PM, New Fundamentals
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There is a significant degree of risk involved in trading securities. With respect to foreign exchange trading, there is considerable risk exposure, including but not limited to, leverage, creditworthiness, limited regulatory protection and market volatility that may substantially affect the price, or liquidity of a currency or currency pair. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts lose money when trading in CFDs. You should consider whether you can afford to take the high risk of losing your money.
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