• 7 hours Jeff Bezos Doubles Down On Space Colonization Ambitions
  • 13 hours Gold Mining Stocks Stuck In Limbo
  • 1 day Executive Order Targets Huawei Over Espionage
  • 2 days Why Now May Be The Best Time Ever To Hold Gold
  • 2 days Fake News Sinks Shares In UK-Based Bank
  • 2 days De Beers To Build $468 Million Diamond Recovery Ship
  • 3 days Moody's: Turkey Faces Possible Credit Downgrade
  • 3 days Tesla's Solar Sales Are Slipping
  • 3 days Auto Industry To Get Temporary Tariff Relief
  • 3 days Welcome To The World’s Biggest Free Trade Area
  • 4 days Central Banks Are Stockpiling Gold At The Fastest Rate In Half A Decade
  • 4 days U.S.-China Impasse Threatens Rare Earth Trade
  • 4 days Wall Street Bears $1 Trillion Brunt Of Trade War
  • 4 days Mobile Sports Betting Isn’t Quite Minting Millionaires Just Yet
  • 5 days The Marijuana Industry’s Shocking Secret
  • 5 days A Generational Shift Is Quietly Unfolding In The Mining Industry
  • 5 days Pentagon To Pay $6 Billion To Help Build Border Wall
  • 5 days Beijing Backlash: Stocks Slammed, Gold Boosted
  • 6 days Market Sentiment At Its Lowest In 10 Months
  • 6 days Trader Compares Current Market Environment To 2007
Strong U.S. Dollar Weighs On Blue Chip Earnings

Strong U.S. Dollar Weighs On Blue Chip Earnings

Earnings season is well underway,…

Market Sentiment At Its Lowest In 10 Months

Market Sentiment At Its Lowest In 10 Months

Stocks sold off last week…

Ashraf Laidi

Ashraf Laidi

AshrafLaidi.com

Ashraf Laidi is the author of "Currency Trading and Intermarket Analysis: How to Profit from the Shifting Currents in Global Markets" - Wiley Trading.

Contact Author

  1. Home
  2. Markets
  3. Other

UK CPI and Diverging TWI-Cable Rates

Act Exp Prev GMT
Great Britain Flag CPI (JUL) (m/m)
-0.2% -0.3% 0.0% Aug 18 8:30
Great Britain Flag CPI (JUL) (y/y)
0.1% 0.0% 0.0% Aug 18 8:30
Great Britain Flag Core CPI (JUL) (y/y)
1.2% 0.9% 0.8% Aug 18 8:30

Sterling hit fresh 2-month highs as UK inflation improved in July, with headline CPI edging up to 0.1% y/y from June's 0.0%, and beating the Bank of England's 0.0%. The notable increase was in core CPI, which rose to a 5-month high of 1.2% vs expectations of 0.9% and a June reading of 0.8%.

GBPUSD vs TWI Divergence

The rise in CPI had been attributed to higher clothing and footwear prices as discounts were reported to have taken place earlier this summer than last year. House prices edged up 5.7% in June from May's 5.6%.


Watching Core-CPI Spread

As the spread between UK core and headline CPI bounces back to 1.1%-- nearing February's all-time high of 1.2%-- and the headline figure remains compressed, further gains in the core rate will get the attention of sterling bulls, especially with no reprieve in energy prices.


GBPUSD vs TWI Divergence

The role of sterling in containing inflation remains notable. But even more important is the divergence between sterling's trade-weighted index (using the BoE's broad TWI) and GBPUSD spot rate, which had widened between July 2014 and April of this year before gradually narrowing. The divergence between the two rates was last seen in the late 1990s, coinciding with plummeting oil prices. But unlike in the 1990s, when the divergence extended into Spring 2000, today, GBPUSD is rising back up alongside the TWI, with any dips in cable being bought instantly.

Growing expectations of a Fed hike had kept GBPUSD under pressure, but rising odds of a BoE rate hike relative to other central banks helped lift GBP against all major currencies, thereby sending GBP's TWI to fresh 7-year highs earlier this month.

Barring UK earnings and other endogenous factors, Fed hike expectations remain the chief factor in slowing down sterling's TWI ascent. Any receding odds of a September liftoff will likely lift GBPUSD back towards the $1.60 figure and closer to $1.65 where the main longer term 100 and 200-month moving averages lie.

 

Back to homepage

Leave a comment

Leave a comment