GBP/USD – Pound Jumps as British CPI Beats Estimate

The British pound has recorded strong gains on Tuesday, as GBP/USD trades at 1.2970. The pound responded positively to strong inflation numbers, led by CPI, which gained 0.6% and beat the forecast. It’s a busy day in the US, led by CPI reports and Building Permits. On Wednesday, Britain will release three key employment events – Average Earnings Index, Claimant Change and the Unemployment Rate. In the US, the major events are Unemployment Claims and the FOMC minutes from the July policy meeting.

It’s been a rough August for the British pound, which has recorded daily losses for most of the month. This trend reversed itself on Tuesday, as the pound has climbed about 100 points. The currency was buoyed by strong inflation numbers for July. CPI, the primary gauge of consumer inflation, posted a gain of 0.6%, its best showing since November 2014. PPI Input and RPI also improved in July and beat their estimates. The inflation numbers mark the start of hard data for the third quarter (which covers the period after the Brexit referendum vote), as most of the recent releases have been surveys. The markets will be hoping for more good news on Wednesday, when the UK releases key employment data. If the numbers beat expectations, the pound rally will likely continue.

US numbers started the week on the wrong foot, as the Empire State Manufacturing Index posted a sharp drop of 4.2 points, compared to the forecast of a gain of 2.1 points. This marked a 3-month low and underscores persistence weakness in the US manufacturing sector. Last week’s disappointing retail sales reports have again dampened enthusiasm about a rate hike in September, when the Fed next meets to decide whether to raise interest rates. A soft GDP report last month had dampened expectations about a rate hike before 2017, but sharp employment numbers, led by a stellar NFP report, raised the odds of a September hike. Unless upcoming indicators, such as Tuesday’s CPI reports surge higher, it’s very likely that the Fed will remain on the sidelines until December or even later.

GBP/USD Fundamentals

Tuesday (August 16)

• 4:30 British CPI. Estimate 0.5%. Actual 0.6%
• 4:30 British PPI Input. Estimate 0.6%. Actual 3.3%
• 4:30 British RPI. Estimate 1.7%. Actual 1.9%
• 4:30 British Core CPI. Estimate 1.3%. Actual 1.3%
• 4:30 British HPI. Estimate 8.3%. Actual 8.7%
• 4:30 British PPI Output. Estimate 0.3%. Actual 0.3%
• 8:30 US Building Permits. Estimate 1.16M
• 8:30 US CPI. Estimate 0.0%
• 8:30 US Core CPI. Estimate 0.2%
• 8:30 US Housing Starts. Estimate 1.18M
• 9:15 US Capacity Utilization Rate. Estimate 75.7%
• 9:15 US Industrial Production. Estimate 0.2%

Wednesday (August 17)

• 4:30 British Average Earnings Index. Estimate 2.5%
• 4:30 British Claimant Count Change. Estimate 5.2K
• 4:30 British Unemployment Rate. Estimate 4.9%
• 14:00 US FOMC Meeting Minutes

*Key releases are highlighted in bold

*All release times are EDT

GBP/USD for Tuesday, August 16, 2016

GBP/USD August 16 at 6:40 GMT

Open: 1.2879 High: 1.2994 Low: 1.2877 Close: 1.2968

GBP/USD Technical

• GBP/USD was flat in the Asian session. The pair has posted sharp gains in European trade
• There is resistance at 1.3064
• 1.2938 has switched to a support role following sharp gains by GBP/USD. It is a weak line

Further levels in both directions:

• Below: 1.2938, 1.2778, 1.2680 and 1.2525
• Above: 1.3064, 1.3142 and 1.3219
• Current range: 1.2938 to 1.3064

OANDA’s Open Positions Ratio

GBP/USD ratio is unchanged on Tuesday. Currently, long positions command a majority (64%), indicative of trader bias towards GBP/USD continuing to move to higher ground.

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.