Pound Finds Modest Rally on Surprising Producer Prices

THE TAKEAWAY: UK inflation reaches a 9-month high, as expected -> Producer prices rise an unexpected 3.2% in February -> Pound rises on producer prices

UK annual inflation rose to a 9-month high in February and sent the Pound upwards in an otherwise steady moving European session. Consumer prices rose 2.8% from February 2012, meeting expectations and slightly higher than 2.7% inflation in January. The CPI was 0.7% over the month, according to the UK Office for National Statistics.

The surprise came from producers prices, which rose 3.2% over the month of February, beating expectations for a 1.5% rise and higher than the 1.3% rise in PPI over January. Retail prices rose 0.7% in February, slightly disappointing expectations for 0.8%.

The rising inflation may have been partially responsible for the Bank of England not increasing quantitative easing in March, as the inflation remains well above the central bank’s 2% inflation target. In February, BoE Governor King said that inflation must be looked at within the context of a struggling economy and trying to subdue inflation may hurt growth.

However, the higher annual inflation was as expected, which is why the Pound rise was attributed to producer prices and not the consumer prices. GBP/USD is currently trading close to 1.5120 in Forex markets, and resistance may be seen next at 1.5201, by the 23.6% Fibonacci retracement of the decline from January’s high to March’s low. Support may be provided by a 2.5 year low at 1.4831.

GBPUSD Daily: March 19, 2013

Chart created by Benjamin Spier using Marketscope 2.0

-- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to bbspier@fxcm.com .

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