Forex: UK CPI falls unexpectedly, Sterling drops

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The UK CPI index was released at 0930GMT this morning 50% worse than expected on the month, giving a reading of 0.3%, much lower than the predicted 0.6%, versus the previous 0.7%. Annually, the rate was also lower than forecast, reading at 4.0% compared to the previous 4.4%.

This indicates this is the first fall in inflation since July last year, giving the Bank of England more reassurance that inflation is under control in the British economy. The Bank of England kept interest rates unchanged in its decision last Friday, and will most likely hold the record low rate of 0.5% for the time being.

GBPUSD plunged 77 pips within a minute upon release of the news from 1.6316 down to 1.6239. Meanwhile, EURGBP spiked 40 pips from 0.8843 0.8884.