GBP Downtrend May Persist as Brexit Outweighs UK CPI

GBP PRICE, NEWS AND ANALYSIS:

• UK headline inflation edged higher to 2.5% year/year in July from 2.4% in June.
• However, the chances of another UK interest rate increase soon are negligible and GBP will likely fall further on concerns about a “hard” Brexit.

GBP TO SHRUG OFF RISE IN UK INFLATION

The headline measure of UK inflation edged up to 2.5% year/year in July but that is unlikely to help the British Pound, which remains under strong downward pressure as a breakthrough in the Brexit negotiations between the UK and the EU continues to be remote.

The overnight index swaps market suggests the chances of another UK interest rate rise are very low and that means no support for GBP from tighter monetary policy – ensuring that Brexit remains the principal driver of the currency.

PROBABILITY LOW OF RATE RISE IN SEPTEMBER

GBPUSD has been falling since mid-April on concerns that the UK and the EU will fail to reach agreement and that downward trend shows no sign yet of ending, with a further drop back to the 1.2589 low touched on June 21 last year a distinct possibility.

In due course, a fudged deal remains possible but that could well fail to emerge until close to the March 29 date when the UK is due to leave the bloc.

GBPUSD PRICE CHART, DAILY TIMEFRAME (MAY 10, 2017 – AUGUST 15, 2018)

The prices data showed core inflation unchanged at 1.9% in July, while the rise in the headline measure was the first so far this year. Both were in line with expectations.

UK house prices rose at their slowest rate in almost five years while prices in London fell at their fastest rate since 2009.

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