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UK CPI [y/y]
The Bank of England uses the inflation indicator of Great Britain to decide on the size of interest rates. As such, it is of the most interest when it approaches or moves away from its target level.
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How to trade UK CPI [y/y]
GBPUSD grows if the data are released above the forecasts, and vice versa.
The target inflation level is set by the Bank of England; as a rule, the target CPI level is 2%. Sometimes, a range of values can be set instead of an exact value – for example, 2 to 3%. The markets often define the range on their own, proceeding from the Central Bank expectations.
The market reaction to the publication of the inflation report may differ significantly in different periods. Sometimes, the news deviation from its forecast at +/-0.2% may appear not interesting for the market, but sometimes +/-0.1% may cause significant changes in quotations. To detect such periods of interest, it is recommended to closely monitor the actions and expectations of the Bank of England: in periods when the Bank is on the sharp edge of the upcoming change in the interest rate or monetary policy in general, the market will be particularly sensitive to the value of the Consumer Price Index, and GBPUSD movements may appear significant.
This indicator requires the relevant attention of the trader to GBP movements before the news publication. The whole "charm" of trading on GBP is that the Brit likes to work out movements before the news. On the one hand, this is fine and fits into the formula "buy the rumor, sell the news", but on the other hand, it can really cut the size of the instantaneous impulse at the time of the news publication. In fact, this is what we use for trading on the news.
The indicator is good enough for trading during the periods when the Bank of England intends to change the interest rate. Such a period can be indirectly determined by the voting structure at a meeting of the MPC Committee of the Regulator: when at least one member of the committee votes against the majority – expect the additional interest of the market to the British statistics in general.
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