Pound Falls to New Four-Month Low as Prices Data Surprise on Downside

The British pound has fallen to a four-month low as consumer price inflation slowed more than expected.

Retail price inflation in July was lower than June's print, weakening the prospects of sooner rate hikes by the Bank of England, thus reducing the yield-based advantage of the pound.

"Good news that inflation is down to 1.6%. We have to stick to our long-term economic plan to ensure financial security for families," Prime Minister David Cameron tweeted after the data.

The market is now waiting for the BoE MPC minutes due on 20 August and clearer dollar cues from the Fed at the Jackson Hole meeting later in the week.

The GBP/USD fell to 1.6634 from 1.6720 following the key prices data and the pair still remained well above the four-month low of 1.6655 touched on 14 August.

The British currency had touched a near six-year high of 1.7192 in early July but it ended that month 1.3% lower. So far, sterling is down 1.5% in August.

The UK consumer price index rose 1.6% year-on-year in July from 1.9% in June and compared to the consensus of 1.8%.

Month-on-month, prices fell 0.3%, after rising 0.2% in the previous month and more than analysts' expectations of a 0.2% drop.

The producer price index fell 7.30% from a year earlier in July, steeper than the June fall of 4.5% and market consensus of 6.55%.

The growth in retail price index slowed to 2.5% in July from 2.6% in June.

GBP/USD Technical Outlook

The pair has been holding below the 50% Fibonacci retracement of the February-July rally since 14 August and is eyeing the 61.8% mark of 1.6620.

Further down, 1.6554 and 1.6442 are the two levels to watch before a retest of the February low of 1.6252.

On the higher side, watch 1.6766 ahead of the 38.2% retracement of 1.6840.

Further north, 1.6925 is a level to watch ahead of the 1.6975-1.7000 region which also falls near the 23.6% Fibonacci as well as the 50-day moving average.

A break of that will open the doors to 1.7192 but before that, 1.7064 may be watched for some resistance.