Is the FTSE 100 a buy ahead of BoE and UK CPI data?

The FTSE 100 index remained under pressure on Tuesday as investors waited for the upcoming UK inflation and Bank of England (BoE) interest rate decision. It was trading at £7,460, which was a few points below this month’s high £7,630. 

UK inflation and BoE decision

The FTSE 100 index will be in the spotlight this week because of the important macro events that are scheduled. As I wrote in this article, the Federal Reserve will conclude its two-day meeting on Wednesday.

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Economists expect that the Federal Reserve will hike rates by 50 basis points after it has hiked by 0.75% in the past four meetings. Jerome Powell will likely provide hints that the Fed will leave interest rates at an elevated level in 2023. His fear is that a dovish tone will spur inflation at a time of slow growth.

Fed actions tend to have an impact on the FTSE 100 and other global indices like the Dow Jones and Hang Seng. 

The FTSE 100 index will also react to the latest US and UK inflation data scheduled for Tuesday and Wednesday. Economists expect that inflation in the two countries diverged. In the US, expectations are that the headline CPI dropped from 7.7% in October to 7.3% in November.

On the other hand, economists expect that UK’s inflation remained in a double-digit level in November. As a result, as I wrote in this report, analysts expect that the Bank of England will hike rates by either 0.50% or 0.75%. It will also hint that it will continue holding rates steady in 2023.

The top FTSE 100 constituents to watch before the BoE decision will be banks like Lloyds, NatWest, and Barclays. These banks will likely do well if the BoE sounds hawkish. Banks make more money in periods of high interest rates.

FTSE 100 forecast

The 4H chart shows that the Footsie index has pulled back in the past few days. In this period, it has retreated below the important support level at £7,520, the highest level on September 13. The index has pulled back below the 25-day and 50-day moving averages while the Relative Strength Index (RSI) is nearing the oversold level.

Therefore, I suspect that the index will retreat for a while and then resume the bullish trend. If this happens, the next key level to watch will be at £7,600.