Inflation numbers might support Pound

Today inflation reading will be published from UK at 9:30 GMT. Data set includes Consumer Price index (CPI), producer price index (PPI), and retail price index (RPI) and house price index (HPI).

• Inflation readings will be closely monitored by both markets and officials at Bank of England (BOE) as it remains key concern of Bank of England (BOE), before it considers raising rates.

• However, Bank of England (BOE) Governor Mark Carney and other officials have clearly indicated that inflation might stay low in the near term, due to lower energy prices. Latest inflation report shows, inflation may remain well below BOE target of 2% in 2016, even if rates remain at same level.

Past trends -

• CPI has been hovering close to zero percent for months now. In January reading was deep in negative territory, fell by -0.9% m/m, bounce back since in February and March. Yearly growth in CPI has been negative for first time in April in at least 50 years. However it has stabilized near zero since then only to drop to negative again in last month.
  
  
• PPI is broadly under downside pressure due lower input costs thanks to lower commodity prices. PPI was -1.3% y/y in October.
  
  
• RPI last year mostly remained in positive territory however in later half of the year and especially February saw sharp decline. RPI after moving to positive territory since March this year, dipped into negative in July but jumped up to 0.5% in August, only to become subdued again.

Expectation today -

• CPI is expected to grow 0.1% y/y but drop -0.1% m/m.
• PPI is expected to drop by -1.2% on monthly basis.
• RPI is expected to decline by -0.1% m/m and 0.9% y/y.
• House prices are also expected to move up in October by 6.4% from a year ago.

Market impact -

• Better than expected inflation reading would provide some boost to pound, which is struggling against USD.
• However any big move is unlike ahead of FOMC tomorrow.

Pound is currently trading at 1.514 against dollar, while resistance remains around 1.527-1.53 area and support around 1.5 psychologically vital level.