GBP/USD – Pound Edges Lower, British CPI Rises

The British pound has ticked lower in the Tuesday session. In North American trade, GBP/USD is trading at 1.3324, down 0.12% on the day. On the release front, British CPI came in at 3.1%, edging above the estimate of 3.0%.  In the US, PPI posted a gain of 0.4%, matching the estimate. Core PPI came in at 0.3%, above the estimate of 0.2%. On Wednesday, the Federal Reserve is expected to raise rates to a range between 1.25% to 1.50%. As well, the US releases CPI reports.

Brexit negotiations are back on track, and the European Union is expected to give a green light to the talks shifting to trade issues. For months, the talks have been stuck over three issues: 1) the size of Britain’s divorce bill; 2) the role of the European Court of Justice; and 3) Northern Ireland’s borders with the UK and Ireland. After some feverish negotiations, sufficient progress has been made on these issues to satisfy the EU, which holds a key summit next week. What will a new trade relationship look like? Brexit policymakers appear divided on this question. On Sunday, Brexit minister David Davis said he envisions a comprehensive trade deal with Europe, which would be signed just after Britain leaves the bloc. The EU recently signed a free-trade treaty with Canada, and Davis said that he wants an agreement “Canada plus plus plus”, meaning that the deep trading ties between the sides and access to European markets would remain intact. International Trade Secretary Liam Fox went a step further on Tuesday, saying that he wants a post-Brexit trading relationship with the EU that is “virtually identical” to the current relationship. It’s questionable whether the EU would agree with Fox’s comments, as Brussels doesn’t want to give Britain too sweet a deal which could give other EU members any ideas about departing from the bloc.

All eyes are on the Federal Reserve, which meets on Wednesday for a policy meeting. The markets are expecting a quarter-point rate hike. Another rate hike is expected in January, with fed futures pricing a rate hike at 87%. The Fed has hinted that it could raise rates up to three times in 2018, and this upward movement in rates will likely propel the US dollar upwards. The US labor market remains at full capacity and various sectors in the economy are reporting a lack of workers. Still, this has not translated into stronger wage growth, despite predictions from Janet Yellen and other Fed policymakers that a lack of workers is bound to push up wages.

GBP/USD Fundamentals

Tuesday (December 12)

• 4:30 British CPI. Estimate 3.0%. Actual 3.1%
• 4:30 British PPI Input. Estimate 1.6%. Actual 1.8%
• 4:30 British RPI. Estimate 4.1%. Actual 3.9%
• 4:30 British Core CPI. Estimate 2.7%. Actual 2.7%
• 4:30 British HPI. Estimate 5.2%. Actual 4.5%
• 4:30 PPI Output. Estimate 0.2%. Actual 0.3%
• 6:00 US NFIB Small Business Index. Estimate 104.6. Actual 107.5
• 8:30 US PPI. Estimate 0.4%. Actual 0.4%
• 8:30 US Core PPI. Estimate 0.2%. Actual 0.3%
• 13:01 US 30-year Bond Auction
• 14:00 US Federal Budget Balance. Estimate -135.2B

Wednesday (December 13)

• 4:30 British Average Earnings Index. Estimate 2.5%
• 4:30 British Claimant Count Change. Estimate 0.4K
• 4:30 British Unemployment Rate. Estimate 4.3%
• 8:30 US CPI. Estimate 0.4%
• 8:30 US Core CPI. Estimate 0.2%
• 14:00 US FOMC Economic Projections
• 14:00 US FOMC Statement
• 14:00 US Federal Funds Rate. Estimate <1.50%
• 14:00 US FOMC Press Conference

*All release times are GMT

*Key events are in bold

GBP/USD for Tuesday, December 12, 2017

GBP/USD December 12 at 12:10 EDT

Open: 1.3340 High: 1.3380 Low: 1.3311 Close: 1.3324

GBP/USD Technical

GBP/USD was flat in the Asian and European sessions. The pair has edged lower in the North American session

• 1.3321 was tested earlier in support. It is a weak line
• 1.3402 is the next resistance line

Further levels in both directions:

• Below: 1.3321, 1.3186 and 1.3035
• Above: 1.3402, 1.3503, 1.3655 and 1.3809
• Current range: 1.3321 to 1.3402

OANDA’s Open Positions Ratio

GBP/USD ratio is unchanged in the Tuesday session. Currently, short positions have a majority (54%), indicative of trader bias towards GBP/USD continuing to move lower.

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.