GBP/USD – Pound Tumbles on Weak British CPI

The British pound has dropped sharply on Tuesday, as the GBP/USD trades in the low-1.59 range in the North American session. The pound has lost about 140 points on the day, and finds itself at 11-month lows against the US dollar. The sharp losses followed an unexpectedly weak CPI report, with a gain of just 1.2%. In the US, there was only one event on the calendar, as the NFIB Small Business Index was shy of the forecast.

British CPI, the primary gauge of consumer inflation, continues to lose ground. The index dropped to 1.2%, a five-year low and short of the estimate of 1.4%. Core CPI and PPI Input also missed their estimates, as inflation indicators continue to point downwards. The weak CPI reading gives Governor Mark Carney more breathing room to maintain current interest rate levels, and investors responded to the news by dumping their pound holdings. There is growing sentiment that the BoE could delay a rate hike until the second half of 2014, with inflationary pressures continuing to recede.

In the US, last week’s FOMC minutes were unexpectedly dovish. In the minutes, the Fed poured some cold water on rising expectations of a rate hike, as a number of policymakers said that the Federal Reserve should take a more data-dependent approach regarding a rate hike. The Fed also voiced concern about the rising strength of the US dollar which could weigh on the recovery. On the weekend, FOMC member Stanley Fischer said that the Fed could slow tightening if global growth is weaker than expected.

US Unemployment Claims were unchanged last week, coming in at 287 thousand. This beat the estimate of 291 thousand. The indicator has now exceeded the forecast for four straight readings. Earlier in the week, JOLTS Job Openings climbed to 4.84 million, up from 4.67 million a month earlier. These numbers followed an excellent Nonfarm Payrolls report, as the US labor market continues to improve. With QE slated to end later this month, the focus will shift to the timetable for an interest rake hike.

GBP/USD for Tuesday, October 14, 2014

GBP/USD October 14 at 15:40 GMT

GBP/USD 1.5930 H: 1.6080 L: 1.5904

GBP/USD Technical

• GBP/USD was steady in the Asian session. The pair posted sharp losses in European trading before stabilizing late in the session. GBP/USD is stable in North American trade.
• The round number of 1.6000 has reverted to a resistance role as the pound trades at sharply lower levels.
• 1.5864 is providing strong support.
• Current range: 1.5864 to 1.6000.

Further levels in both directions:

• Below: 1.5864, 1.5717, 1.5644 and 1.5460
• Above: 1.6000, 1.6141, 1.6263, 1.6382 and 1.6484

OANDA’s Open Positions Ratio

GBP/USD ratio has a majority of long positions, indicative of trader bias towards the pound moving higher.

GBP/USD Fundamentals

• 8:30 British CPI. Estimate 1.4%. Actual 1.2%.
• 8:30 British PPI Input. Estimate -0.4%. Actual -0.6%.
• 8:30 British RPI. Estimate 2.3%. Actual 2.3%.
• 8:30 British Core CPI. Estimate 1.8%. Actual 1.5%.
• 8:30 British HPI. Estimate 12.3%. Actual 11.7%.
• 8:30 British PPI Output. Estimate -0.1%. Actual -0.1%.
• 11:30 US NFIB Small Business Index. Estimate 97.2 points. Actual 95.3 points.

* Key releases are in highlighted 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.