Global macro overview for 19/07/2017:
The inflation data from the UK disappointed the global investors. The UK Consumer prices declined June to 0.0% compared with expectations of a 0.2% increase on the month and on a yearly basis it declined from 2.9% to 2.6% (this was also the first decline in the annual rate since October 2016). Moreover, the Core CPI declined as well from 2.6% to 2.4% and Retail Price Index declined from 0.4% to 0.2%. There was downward pressure on fuel prices for the month together with some price declines in some recreational and cultural goods. The largest upward impact on inflation, measured on a yearly basis, came from housing and household services.
The UK inflation trends will continue to have an important impact on the Bank of England policy expectations, but such a turn of events reduces the chances of a rate hike at the August policy meeting. After yesterday's data release, its valuation was at several percents yesterday at the end of the day. The BoE tolerance of inflation being above 2.0% is very limited as every sudden jump in inflationary pressures can trigger the second-round effects of increased inflation expectations which can eventually distort the medium-term expectations and put pressure on prices. Further interest rate hike expectations should diminish even among the hawkish members of BoE Monetary Policy Committee (MPC).
As noted many times, the recent disappointing data set from the UK economy and a big miss in inflation readings will put more pressure on the British Pound across the board.
Let's now take a look at the GBP/USD technical picture on the H4 time frame. After the inflation data was released, the price retraced from the local high at the level of 1.3125 and move below the technical support with the low at the level of 1.3003. The overbought market conditions and visible bearish divergence support the downside bias.
