• 22 hours Trump Was Right About The Dollar
  • 1 day Is Silver Gearing Up For A Rally?
  • 1 day World’s Largest Hedge Fund Turns Bullish On Gold
  • 1 day It’s Time To Spend More On Clean Energy R&D
  • 2 days Contrarian Investors Are Beating The Stock Market
  • 2 days Bulgaria’s Revenue Agency Falls Victim To Biggest Cyber Heist In History
  • 2 days Amazon Faces European Union Anti-Trust Probe
  • 2 days Commodities Are Having A Stellar Year
  • 3 days Bezos’ Next Big Project Could Be Worth $100 Billion Per Year
  • 3 days 3,600 Years Later, Climate Change Turns Mammoths Into $40M Market
  • 3 days Tesla, Apple Claim China Is Stealing Intellectual Property
  • 3 days EV Giants Duke It Out For Battery Dominance
  • 4 days Tech Billionaire Takes Aim At Google
  • 4 days Chinese Police Bust Largest Ever Illicit Crypto Mining Operation
  • 4 days Expect A Pullback Before Gold's Next Major Rally
  • 4 days Why Interest On Gold Matters
  • 5 days Ten Extravagant Food Items For The Wealthy Only
  • 5 days Why Saudi Arabia Won't Give Up On The Aramco IPO
  • 6 days $32 Million Crypto Heist Halts Tokyo Exchange
  • 6 days Is A Gold Selloff Looming?
Market Sentiment At Its Lowest In 10 Months

Market Sentiment At Its Lowest In 10 Months

Stocks sold off last week…

The Problem With Modern Monetary Theory

The Problem With Modern Monetary Theory

Modern monetary theory has been…

Billionaires Are Pushing Art To New Limits

Billionaires Are Pushing Art To New Limits

Welcome to Art Basel: The…

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