UK gilts rally as consumer inflation unexpectedly slows in October

The United Kingdom gilts rallied Tuesday after recent data showed that the country’s consumer inflation slowed unexpectedly in October.

The yield on the benchmark 10-year gilts, which moves inversely to its price, fell 4-1/2 basis points to 1.367 percent, the super-long 30-year bond yield dipped 5 basis points to 2.019 percent and the yield on short-term 2-year slid 1 basis point to 0.197 percent by 09:40 GMT.

UK’s October consumer inflation index (CPI) of 0.9 percent y/y occurs against the backdrop of a 0.1 percent m/m climb and is perceptibly lower than the 0.3 percent m/m rate predicted by the market.

This clearly would seem that previous increases in producer output price inflation, and British pounds weakness that is being reflected in rising import price inflation, are only very slowly making their way through to prices at the consumer level.

This suggests that retailers are taking a hit to their profit margins but it is only a matter of time before the increased pipeline cost pressures are eventually unleashed on prices at the consumer level. For now, though, GBP weakness should be compounded by this latest development.

Lastly, investors remain keen to focus on the upcoming economic data and events, highlighted by claimant count change, unemployment rate, BoE MPC Member Cunliffe speech, October retail sales.

Meanwhile, the FTSE 100 traded 0.90 percent higher at 6,813 by 09:40 GMT. While at 09:00 GMT, the FxWirePro's Hourly GBP Strength Index approaching bearish trend, currently at -69.15 (lower than -75 represents purely bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex