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The British pound took a heavy hit once again on Friday despite mostly positive data. The UK’s visible trade deficit fell to the lowest level in more than three years, narrowing to 6.24 billion pounds in August from 6.431 billion in July, but the shift had more to do with a drop in imports, as exports also fell, indicating the demand remains weak both domestically and abroad. Meanwhile, the producer price index (PPI) that measures input prices slumped 0.5 percent in September, but a 0.5 percent increase in PPI output suggests that businesses have a bit more pricing power these days and may be able to make up for some lost profit margins. Furthermore, the data creates some potential for surprising strong results for the consumer price index (CPI) next week.

Next Tuesday at 4:30 ET, the CPI reading for the month of September is expected to rise 0.3 percent, but the more important part of this report is that the annual rate of growth, which is more closely watched by the Bank of England, is forecasted to fall to 1.3 percent, the lowest since October 2004, from 1.6 percent, keeping inflation within the central bank’s acceptable range of 1 percent - 3 percent, but below their 2 percent target. If CPI falls more than projected, the British pound could pull back sharply as the markets will anticipate that the BOE will expand their quantitative easing efforts even further before year-end. On the other hand, if CPI holds strong as PPI suggests, the currency could rally in response.