GBP/USD Daily Forecast

Tuesday, Jan 17 2017

Yesterday's session was marked by UK CPI and PPI figures as well as Theresa May's Brexit speech. The Consumer Prices Index (CPI) rose by 1.6% in the year to December 2016, compared with a 1.2% rise in the year to November. The rate in December was the highest since July 2014, when it was also 1.6%. Price movements for the majority of the broad groups of goods and services acted to increase the rate between November 2016 and December 2016. The main contributors to the increase in the rate were rises in air fares and the price of food, along with prices for motor fuels, which fell by less than they did a year ago.

The annual rate of producer price inflation continued to grow in December 2016, although mainly as a result of falling prices a year ago, as growth was relatively flat on the month. Factory gate prices (output prices) rose 2.7% on the year to December 2016 and 0.1% on the month, which was the sixth consecutive period of annual growth and the eleventh of monthly growth. Prices for materials and fuels paid by UK manufacturers for processing (input prices) rose 15.8% on the year to December 2016 and 1.8% on the month.

Prime Minister Theresa May offered her most explicit vision of Britain’s future relationship with its European Union neighbors, pledging to quit the single market and instead seek a customs agreement with the bloc to deliver “a smooth and orderly Brexit. I know there are some voices calling for a punitive deal that punishes Britain and discourages other countries from taking the same path,” May said in her speech to diplomats in London on Tuesday. “That would be an act of calamitous self-harm for the countries of Europe. And it would not be the act of a friend.”

Laying out the government’s Brexit plans with 12 core objectives, May said that she was confident a deal can be reached with the European Union once the trigger to leave is pulled by the end of March. She called for a “phased approach” to implementing the new rules to ensure Brexit is “smooth.” May offered a series of other aims for the coming talks:

She wants to recast membership of Europe’s customs union by maintaining tariff-free, friction-less trade with the EU, but without having to impose the same duties on non-EU countries
The ability to negotiate new trade deals with countries outside the bloc
She wants transitional arrangements for financial services and other companies so new rules are phased in over time
No more “huge” U.K. contributions to the EU budget

Focus of tomorrow's session will be on UK job data. While Unemployment Rate should remain unchanged at 4.8%, number of unemployed should incline by 4,600. In the US session CPI and Industrial Production figures will be published. Analysts forecast 0.3% increase in CPI and 0.8% rise in Industrial Production.

Figures to watch:

Claimant Count Change/Unemployment Rate (Wednesday 10:30)

CPI (Wednesday 14:30)

Industrial Production (Wednesday 15:15)

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