GBP/USD – Pound Plunges on Weak British CPI

The pound has dropped over 100 points on Tuesday, as GBP/USD trades in the low-1.66 range in the North American session. British inflation indicators softened in July, led by CPI, the primary gauge of consumer inflation, which slipped to 1.6%.  In the US, Tuesday’s numbers were mixed. CPI and Core CPI posted weak gains of 0.1%, while Building Permits and Housing Starts improved in July and beat their estimates.

The pound’s woes continue, as the currency took a tumble after the release of CPI. The index fell to 1.6%, down from 1.9% a month earlier. This was shy of the estimate of 1.8%, and is well below the BOE inflation target of 2.0%. Other inflation indicators missed their estimates, with PPI Input looking particularly weak, posting a sharp decline of 2.5%.

US housing numbers were sharp on Tuesday. Building Permits improved to 1.05 million, beating the estimate of 1.00 million. Housing Starts jumped to 1.09 million, easily beating the estimate of 0.97 million. Meanwhile, inflation numbers in the US remain at very low levels. On Tuesday, CPI and Core CPI, the primary gauges of consumer inflation, both posted paltry gains of 0.1%.  These weak readings come on the heels of PPI, a manufacturing inflation index, which also came in at 0.1% last month. Weak inflation is one reason why the Federal Reserve is in no rush to raise interest rates, as low inflation points to slack in the economy.

Financial leaders and central bankers from around the world will gather in Jackson Hole, Wyoming for a conference which starts on Friday. This will be Janet Yellen’s first appearance as Fed chair at the conference, and will undoubtedly be the star of the show. Yellen is expected to discuss the employment market rather than monetary policy, but the markets will be listening closely for any hints as to an interest rate hike.

 

GBP/USD for Tuesday, August 19, 2014

GBP/USD August 19 at 15:40 GMT

GBP/USD 1.6620 H: 1.6726 L: 1.6612

 

GBP/USD Technical

S3 S2 S1 R1 R2 R3
1.6382 1.6484 1.6565 1.6700 1.6825 1.6920

 

  • GBP/USD lost ground late in the Asian session and posted strong losses during European trade. The pound remains under pressure in the North American session.
  • 1.6700 has reverted to a resistance role as the pound is down sharply. It is a strong line.
  • 1.6565 is providing support.
  • Current range: 1.6565 to 1.6700.

Further levels in both directions:

  • Below: 1.6565, 1.6484 and 1.6382
  • Above: 1.6700, 1.6825, 1.6920 and 1.7000

 

OANDA’s Open Positions Ratio

GBP/USD is pointing to gains in long positions in Tuesday trade. This is not consistent with the movement we are seeing from the pair, as the pound has recorded sharp losses. The ratio  has a large majority of long positions, indicative of trader bias towards the pound reversing direction and moving higher.

GBP/USD Fundamentals

  • 8:30 British CPI. Estimate 1.8%. Actual 1.6%.
  • 8:30 British PPI Input. Estimate -1.0%. Actual -1.6%.
  • 8:30 British RPI. Estimate 2.6%. Actual 2.5%.
  • 8:30 British Core CPI. Estimate 1.9%. Actual 1.8%.
  • 8:30 British HPI. Estimate 11.2%. Actual 10.2%.
  • 8:30 British PPI Output. Estimate +0.1%. Actual -0.1%.
  • 12:30 US Building Permits. Estimate 1.00M. Actual 1.05M.
  • 12:30 US CPI. Estimate 0.1%. Actual 0.1%.
  • 12:30 US Core CPI. Estimate 0.2%. Actual 0.1%.
  • 12:30 US Housing Starts. Estimate 0.97M. Actual 1.09M.

* Key releases are highlighted in bold

*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.