GBP/USD – British Pound Trips as British CPI Misses Estimate

The British pound has posted considerable losses in the Tuesday session. In the North American session, the pair is trading at 1.2862, down 0.79% on the day. On the release front, British CPI remained unchanged at 2.6%, shy of the forecast of 2.7%. Over in the US, Retail Sales came in at 0.6%, above the estimate of 0.3%. Core Retail Sales also looked sharp, with the gain of 0.5% beating the forecast of 0.3%. There was more good news from the manufacturing sector, as the Empire State Manufacturing Index soared to 25.2, crushing the estimate of 10.1 points. On Wednesday, the US releases Building Permits and Housing Starts. As well, the FOMC publishes its minutes from the July FOMC meeting.

British CPI, the primary gauge of consumer spending, remained unchanged at 2.6% in July. Inflation has dropped considerably since May, when CPI came in at 2.9%, and lower inflation has eased the pressure on the BoE to raise interest rates. BoE policymakers have been divided over monetary policy, with recent policy meetings showing a sizable majority favor raising rates. However, BoE Governor Mark Carney has come out against raising rates, citing continuing uncertainty on how Brexit will affect the UK economy. The BoE still sees high inflation levels ahead, saying that CPI could hit around 3% in October.

One of the buzz words surrounding Brexit is “transition period”, as some politicians have come out in favor of a period between Britain’s departure and post-Brexit rules coming into effect. This would minimize the destabilizing effect of Brexit on British businesses, who are worried about the “day after” the UK leaves the European Union. On Tuesday, the government said that it wants an “interim customs agreement” with the continent, for up to two years. Under the proposal, Britain would enjoy tariff-free trade with the EU, while being able to negotiate free trade agreements at the same time. However, it’s questionable whether the EU, which has already taken a hard negotiating stance with Britain, will agree with such an arrangement. The two sides will meet next on August 28 for another round of what promise to be arduous talks.

UK Seeking Interim Customs Deal After Brexit

GBP/USD Fundamentals

Tuesday (August 15)

• 4:30 British CPI. Estimate 2.7%. Actual 2.6%
• 4:30 British PPI Input. Estimate 0.4%. Actual 0.0%
• 4:30 British RPI. Estimate 3.5%. Actual 3.6%
• 4:30 British Core CPI. Estimate 2.5%. Actual 2.4%
• 4:30 British HPI. Estimate 4.3%. Actual 4.9%
• 4:30 British PPI Output. Estimate 0.o%. Actual 0.1%
• 8:30 US Core Retail Sales. Estimate 0.3%. Actual 0.5%
• 8:30 US Retail Sales. Estimate 0.3%. Actual 0.6%
• 8:30 US Empire State Manufacturing Index. Estimate 10.1. Actual 25.2
• 8:30 US Import Prices. Estimate 0.1%. Actual 0.1%
• 10:00 US Business Inventories. Estimate 0.4%. Actual. 0.4%
• 10:00 US NAHB Housing Market Index. Estimate 64. Actual 68
• 14:00 US TIC Long-Term Purchases. Estimate 28.3B

Wednesday (August 16)

• 8:30 US Building Permits. Estimate 1.25M
• 8:30 US Housing Starts. Estimate 1.23M
• 14:00 US FOMC Meeting Minutes

*All release times are GMT

*Key events are in bold

GBP/USD for Tuesday, August 15, 2017

GBP/USD August 15 at 11:55 EDT

Open: 1.2965 High: 1.2971 Low: 1.2847 Close: 1.2862

GBP/USD Technical

• GBP/USD was flat in the Asian session. The pair recorded sharp losses in the European session and is showing little movement in North American trade
• 1.2767 is providing support
• 1.2865 has switched to resistance role following sharp losses by GBP/USD. It is a weak line

Further levels in both directions:

• Below: 1.2767, 1.2639 and 1.2479
• Above: 1.2865, 1.2946, 1.3058
• Current range: 1.2767 to 1.2865

OANDA’s Open Positions Ratio

GBP/USD ratio is showing little movement this week. Currently, long positions have a majority (55%), indicative of trader bias towards GBP/USD reversing directions and moving upwards.

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.