The British CPI report proved that inflation went up from 3.0% to 3.2%, which was rather surprising and exceeded the target range of the central bank (1 – 3%). The main cause of the increase in consumer prices was the rise in household goods by 2.4% and also the 1.7% increase in food prices contributed. Furthermore, core prices which eliminate unstable energy costs went up from 1.3% to 1.6%, which could be a sign of stabilization in broader prices which would of course influence currency trading. Governor Mervyn King has to explain the rising price pressures to the government as inflation is above the central bank’s target band.

Mervyn King’s comments weigh on pound
Mervyn King, governor of the Bank of England, countered the unexpected outcomes by ascribing them to the fall in the pound sterling. King also stated that potential quantitative easing measures will be determined by inflation and it will lead its exit strategy. He also said that banks should focus on increasing the savings interest and that the effects of quantitative easing decisions could be seen after six months. As a result of King’s remarks the British pound lost some of its gains. Meanwhile, for the first time since August 2008 the GBP/USD reached a level that was above the 100-Day SMA which is obviously bullish evidence.

January’s house price index expected to decline
The US dollar may remain weak if stock markets continue their growth today. It is to be expected that the house price index of January will decrease by 0.9%, possibly without consequences due to the unexpected recovery of existing home sales. If the Richmond Fed manufacturing data turn out to be disappointing it may increase concerns over more job losses. Nevertheless, it is possible that profit taking could appear today which may boost the dollar after yesterday’s rally. Today US futures seems to open lower while European markets are mixed. Comments by Fed chairman Ben Bernanke and U.S Treasury Secretary Tom Geithner on the AIG debacle could influence markets today.