• UK CPI rises by 10.1% YoY in July vs. 9.8% expected.
• Monthly UK CPI arrives at 0.6% in July vs. 0.4% expected.
• GBP/USD jumps towards 1.2150 on hotter UK CPIs.

The UK Consumer Prices Index (CPI) 12-month rate came in at 10.1% in July when compared to 9.4% seen in June while beating estimates of a 9.8% score, the UK Office for National Statistics (ONS) reported on Wednesday. The index hit the highest level since 1982.

Meanwhile, the core inflation gauge (excluding volatile food and energy items) rose to 6.2% YoY last month versus 5.8% booked in May, outpacing the market consensus of 5.9%.

The monthly figures showed that the UK consumer prices climbed by 0.6% in July vs. 0.4% expectations and 0.8% previous.

The UK Retail Price Index for July arrived at 0.9% MoM and 12.3% YoY, beating estimates across the time horizon.

FX implications:

In an initial reaction to the UK CPI numbers, the GBP/USD pair jumped 20 pips to daily highs near 1.2145.

The pair was last seen trading at 1.2126, up 0.27% on the day. The US dollar retreats amid a better mood, underpinning the pair ahead of the Fed minutes.

Why UK inflation matters to traders?

The Bank of England (BOE) is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI) at around 2%, giving the monthly release its importance. An increase in inflation implies a quicker and sooner increase of interest rates or the reduction of bond-buying by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price rises indicates looser monetary policy. A higher-than-expected result tends to be GBP bullish.