GBP/USD Inflation Falls but Housing Continues to Rise in the UK

The Office for National Statistics in the United Kingdom reported a 2.8% inflation number in July. This is slightly better than the 2.9% June figure, but not enough to offset the lower rate of pay rises. Housing prices rose 3.1% prompting fears that the government’s “Help to Buy” program could be fuelling a housing bubble. The housing price rise in London was 8.1%.

GBP/USD Daily Forex Graph for August 13, 2013

The GBP/USD has experienced a volatile morning before and after the inflation numbers. Early in European trading the pair was coming down session high of 1.5480 down towards 1.5460. The inflation numbers and possible housing bubble arguments drove the pair lower to 1.5430 but in the American session the losses have been reversed as the pair again mounts an attach on the 1.55 price level.

GBP/USD Weekly Forex Graph forAugust 13, 2013

A group of economists have forecasted that the 7 percent unemployment rate could be hit sooner than the Bank of England estimates. Tomorrow’s release of the central bank’s minutes will be of particular interest to shed more detail into the stimulus vote as higher rates could be sooner rather than later. This week with inflation and employment numbers as well as the BoE minutes should give traders plenty to chew on as the week progresses.

GBP/USD Monthly Forex Graph for August 13, 2013

GBP/USD Technical

S3 S2 S1 R1 R2 R3
1.5405 1.5416 1.5426 1.5447 1.5458 1.5468

The major trends in the market continue to be:

US Federal Reserve Tapering. The timeline is still unknown and there have been strong arguments for it to start as soon as next month as well as to hold off for the rest of the year as Bernanke’s replacement is in office. The more imminent the end of QE is the USD receives a boost, vice versa when the timetable gets further pushed into the next year.

European recovery boosted by German growth. Germany continues posting strong confidence and manufacturing numbers. For the rest of Europe its more of a reducing the contraction but is still seen as a positive. The EUR has appreciated on the back of the good European numbers and the USD weakness as tapering is still a moving target.

China statistics point to a rebound. China output and imports appear to be back on track. There are still question marks as how sustainable that is at this point. The biggest threat to Chinese stability is its banking system but the government has been proactive to reduce the size and reach of "shadow banking’

Japan’s weak GDP puts sales tax under scrutiny. The Japanese GDP figures fell back to earth this week. After posting an impressive 3.8% in March the figures fell to 2.6% of GDP growth. The honeymoon period between the markets and PM Shinzo Abe might be near. The low GDP growth puts a big question mark on the progress of one of Abe’s “arrows” to fix the Japanese economy. A sales tax has been discussed as the next step to try and bolster Japan’s public finances, but given the low growth it might be delayed or pushed off the agenda indefinitely.

GBP/USD Fundamentals

  • Wed Aug 14 Jobless Claims Change
  • Wed Aug 14 Employment Change
  • Wed Aug 14 Bank of England Minutes
  • Wed Aug 14 Claimant Count Rate
  • Wed Aug 14 ILO Unemployment Rate
  • Thu Aug 15 Retail Sales

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.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza