Sterling may attempt breakout on inflation data

After the Brexit referendum in the United Kingdom, sterling suffered a devaluation against its major trading counterparts and as a result of that, in July, inflation reading surprised to the upside. However, since July, there hasn’t been a further devaluation of the sterling and it is higher compared to the levels seen after the referendum. The sterling is currently trading at 1.332 against the dollar, which is 500 points higher from the bottom it made after the vote.

So, the focus will now stay on the next set of data. The inflation figures for the month of August will be reported at 8:30 GMT, today.

• The retail price index, in July, surprised to the upside and shot up to 1.9 percent. This month it is expected to moderate to 1.8 percent.
• The biggest rise was seen in the producer price index, that grew by 4.3 percent in July compared to a negative 0.5 percent in June and today is expected to shot up to 8.1 percent. Last month producer price index for output didn’t grow much compared to the input; it was up by only 0.3 percent. Today it is expected to grow by 1.1 percent. We believe that the impact could be bigger than expected this time around.
• Another focus point would be the house price index and the traders would be looking for weakness here, but if the data surprises on the positive side then that’s great news.
• Finally the CPI reading, this shot up to 0.6 percent in July and is expected to move higher to 0.7 percent. A surprise here would be the biggest mover in the sterling.

If the inflation data turns out to be pointing north, the sterling could join the ride north as well. The sterling is currently trading at 1.331, and it could break the key resistance around 1.34 over the data.