Piccadilly Circus in London. Image source: Michaela Be © 123RF.com
The Consumer Price Index in the UK rose to 1 per cent in July on a yearly basis, as reported by the Office for National Statistics. The recorded performance exceeded the consensus forecasts anticipating the CPI index to remain unchanged at 0.6 per cent from its June reading.
UK Inflation Rate. Image source: TradingEconomics.com
The sudden spike in consumer price is attributed to higher energy prices and the spillover effect this had on other goods and services. Additionally, the easing of some Government restrictions last month contributed to higher consumer spending rates.
Despite this welcoming development, however, inflation is expected to drop next month due to a projected fall of energy prices.
Moreover, the resurgence of COVID-19 cases threatens the tentative recovery of the underlying consumer sentiment. The reintroduction of stricter containment measures could further propel the British economy towards entering structural deflation.
Even if this proves to be only a temporary spike in consumer prices, it still represents a much-needed respite for the reeling British economy, which recently registered its biggest quarterly contraction on record.
The short-lived positive trend is likely to be further bolstered this week when the Markit institute publishes the highly-anticipated industry numbers for August.
According to the prevailing market forecasts, the British economy is anticipated to lift off from this historic slump by generating marginal improvements in the two most significant industrial sectors - manufacturing and services.
All of these developments could strengthen the pound, which already finds itself in a solid bullish market. As can be seen on the 4H chart below, the EURGBP pair is currently in the process of testing the strength of the Bearish Flag pattern's lower boundary.
The pair has been threading around the 38.2 per cent Fibonacci retracement level at 0.90340 since our previous analysis of the pair, but now it finally looks ready to test breaking further down south.
This assertion is supported by the fact that the 10-day MA (in red) has already crossed below the 30-day MA (in green), which is exhibitive of rising bearish pressure in the short-term.
Once these two moving averages manage to cross below the 50-day MA (in blue), while the price action remains concentrated below the three, this relationship would represent an even more significant piece of evidence demonstrating rising selling pressure.
EURGBP 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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