GBP/USD – Pound Slides as UK Inflation Misses Estimate

GBP/USD has posted sharp losses on Tuesday. In the North American session, the pair is trading at the 1.32 line. On the release front, CPI remained unchanged at 0.6%, short of the estimate of 0.7%. PPI Input dropped to 0.2%, missing the forecast of 0.6%. In the US, there are no major events on the schedule. NFIB Small Business Index came in at 94.4 points, short of the forecast of 94.9 points. On Wednesday, the GBP will release key employment data, led by Claimant Count Change.

British inflation numbers didn’t meet market expectations, and the pound has paid the price, dropping 120 points on Tuesday. CPI, the primary gauge of consumer inflation, remained pegged at 0.6%, a respectable reading but short of the forecast. PPI Input plunged to just 0.2% in August, down from 3.6% a month earlier. It could be a volatile week for the pound, as the UK releases key job numbers on Wednesday, followed by the BoE rate and asset-purchase decisions on Thursday. The bank is expected to maintain rates at the record low of 0.25%. British data in the third quarter as been better than expected, giving the BoE some breathing room after the dramatic rate cut in August, the first such move since 2009.

With the Federal Reserve holding a crucial meeting on September 21, the markets have been paying even closer attention to recent comments from Fed policymakers. On Monday, FOMC member Lael Brainard sounded cautious, saying it would be prudent to maintain a loose monetary policy. Brainard noted global uncertainties and weak inflation as reasons for the Fed not to rush into raising rates. This dovish message was in marked contrast to remarks from FOMC member Eric Rosengren on Friday, who came out in support of a rate hike, without providing a timeline. Rosengren said that “tightening is likely to be appropriate”, and went as far as to say that the US economy could overheat if the Fed didn’t act soon. These mixed messages certainly haven’t clarified matters, leaving markets players in the dark as to the Fed’s monetary plans. However, they have led to plenty of movement in the odds of a rate hike, which moved higher after Rosengren’s speech, only to drop following Brainard’s comments. The likelihood of a September hike has dipped to 15%, while the odds of a December rate are down to 45%. The markets will have few fundamental cues to work with until Thursday and Friday, when the US will release retail sales, CPI and consumer confidence numbers. If these numbers are stronger than expected, the odds of a rate hike next week will move higher, and the dollar could make headway against its rivals.

GBP/USD Fundamentals

Tuesday (September 13)

  • 4:30 British CPI. Estimate 0.7%. Actual 0.6%
  • 4:30 British PPI Input. Estimate 0.6%. Actual 0.2%
  • 4:30 British RPI. Estimate 1.8%. Actual 1.8%
  • 4:30 British Core CPI. Estimate 1.4%. Actual 1.3%
  • 4:30 British HPI. Estimate 8.5%. Actual 8.3%
  • 4:30 British PPI Output. Estimate 0.3%. Actual 0.1%
  • 6:00 US NFIB Small Business Index. Estimate 94.9. Actual 94.4
  • 13:01 US 30-year Bond Auction
  • 14:00 US Federal Budget Balance. Estimate -98.0B

Wednesday (September 14)

  • 4:30 British Average Earnings Index. Estimate 2.1%
  • 4:30 British Claimant Count Change. Estimate 1.7K
  • 4:30 British Unemployment Rate. Estimate 4.9%

*All release times are EDT

* Key events are in bold

GBP/USD for Tuesday, September 13, 2016

GBP/USD September 13 at 10:30 EDT

Open: 1.3334 High: 1.3338 Low: 1.3182 Close: 1.3203

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.2899 1.3033 1.3142 1.3219 1.3327 1.3480
  • GBP/USD was flat in the Asian session. The pair has posted sharp losses in the European and North American trade
  • 1.3219 has switched to resistance following sharp losses by GBP/USD in the Tuesday session
  • 1.3142 is providing support

Further levels in both directions:

  • Below: 1.3142, 1.3033 and 1.2899
  • Above: 1.3219, 1.3327, 1.3480 and 1.3667
  • Current range: 1.3142 to 1.3219

OANDA’s Open Positions Ratio

GBP/USD ratio is showing slight movement towards long positions. Currently, long positions have a majority (54%), indicative of trader bias towards GBP/USD reversing directions and moving higher.

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.