The GBP/USD price was up on Wednesday after the release of strong CPI and PPI data in the UK. The pair was trading at 1.38449.

GBP/USD Outlook

UK’s Economic Stance

UK’s Consumer Price Index (CPI) for June increased 2.5% on a year-over-year basis. The CPI rose 0.5% MoM up from 0.1% in June 2020. This saw the GBP/USD slightly edge higher.

With the easing of lockdown restrictions, businesses reopened as global economies headed towards recovery. However, the Delta variant has brought about concerns in the markets. investors are worried that with the variant, economies would retreat.

UK’s Consumer Price Index including owner occupiers’ housing costs (CPIH) rose 2.4% YoY from the previous 2.1% increase in May. Transport was the largest contributor to the CPIH 12-month inflation rate.

The CPIH was up 0.4% on a month-on-month basis. This was boosted by the rise in prices for food, clothing, motor fuel, and second-hand cars in June 2021. However, these gains were partially offset by declines in prices for games and toys.

The headline rate of output prices soared 4.3% YoY in June 2021. The headline rate of input prices indicated a growth. It came in at 9.1% YoY easing from the previous 10.4% in May. Transport equipment provided the most gains in output prices while metallic and non-metallic minerals were the largest contributors to the output prices.

US Inflation Concerns

The GBP/USD pair inched lower on Wednesday despite the better-than-expected US Consumer Price Index (CPI) for June. Inflation in June surged at its fastest rate in 13 years boosted by increased car and truck prices.

The Consumer Price Index rose 5.4% YoY, the largest leap since August 2008. It surpassed the 4.9% estimate forecast. Excluding energy prices and volatile food, the core CPI advanced 4.5% YoY beating the 3.8% forecast. This was the sharpest growth in three decades.

Both the headline and core CPI came in 0.9% higher on a month-on-month basis surpassing the 0.4% estimate. Used car and truck prices jumped 10.5% making them the biggest contributors to the gains in the CPI.

According to policymakers, inflation has been escalating due to the easing of lockdown restrictions which in turn increase demand. Supply-chain bottlenecks as well as comparisons to the previous year have also contributed to the surge in inflation.

Investors are looking ahead of Jerome Powell’s semi-annual appearance before the congress. They are hoping to get clues on what the Fed is thinking about the current inflation surge. The GBP/USD will react to the US PPI data for June later in the day.

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