GBP/USD – Pound Softens as CPI Misses Estimate

GBP/USD has posted considerable losses on Tuesday, continuing the downward movement which marked the Monday session. In North American trade, the pair is trading at the 1.24 line. On the release front, British CPI unexpectedly dropped to 0.9%, short of the forecast of 1.1%. As well, BoE Mark Carney testified about inflation and the economy before a parliamentary committee. In the US, Retail Sales and Core Retail Sales posted identical gains of 0.8 percent, as both indicators beat their estimates. The Empire State Manufacturing Index gained 1.5 points, beating the forecast of -1.5. On Wednesday, the UK will release three key employment indicators – Average Earnings Index, Claimant Change and the unemployment rate. The US will publish PPI.

Inflation was in the spotlight in the UK on Tuesday. CPI, the primary gauge of consumer spending, jumped 1.0% in September, and the markets expected a stronger gain of 1.1% for October. The index fell short of the forecast, with a gain of 0.9%. GBP/USD has responded with losses of close to 1 percent. Meanwhile, BoE head Mark Carney faced a tough grilling from a parliamentary committee. The governor was reminded that the bank slashed its growth forecast for 2017 back in August, only to revise the forecast higher earlier this month. Carney defended that BoE’s projections, acknowledging that the BoE had been too pessimistic in August. He said that the Brexit vote had caused a “slow motion slowdown” rather than a sharp adjustment. Carney added that he planned to step down as governor in 2019, as he agreed to stay on for an extra year (after his four-year term) and remain at the helm of the BoE during Britain’s exit from the European Union.

With the Federal Reserve setting interest rates in less than a month, expectations are high that the Fed will press the trigger and raise rates by a quarter-point for the first time in a year. There have been several false starts before, but this time should be different. The Fed has sent out strong signals that it will raise rates in December, and in the past two rate decisions, some FOMC members voted for an immediate rate hike. The odds of a rate rise currently stand at an impressive 86 percent, so barring some sudden negative data, we appear headed for a rate hike before the end of 2016.

GBP/USD Fundamentals

Tuesday (November 15)

• 4:30 British CPI. Estimate 1.1%. Actual 0.9%
• 4:30 British PPI Input. Estimate 1.6%. Actual 4.6%
• 4:30 British RPI. Estimate 2.3%. Actual 2.0%
• 4:30 British Core CPI. Estimate 1.4%. Actual 1.2%
• 4:30 British HPI. Estimate 8.1%. Actual 7.7%
• 5:00 British Inflation Report Hearings
• 8:30 US Core Retail Sales. Estimate 0.5%. Actual 0.8%
• 8:30 US Retail Sales. Estimate 0.6%. Actual 0.8%
• 8:30 US Empire State Manufacturing Index. Estimate -1.5. Actual +1.5
• 8:30 US Import Prices. Estimate 0.4%
• 9:05 US FOMC Member Daniel Tarullo Speech
• 10:00 US Business Inventories. Estimate 0.2%
• 13:30 US FOMC Member Stanley Fischer Speech

Wednesday (November 16)

• 4:30 British Average Earnings Index. Estimate 2.3%
• 4:30 British Claimant Count Change. Estimate 1.9K
• 4:30 British Unemployment Rate. Estimate 4.9%
• 8:30 US PPI. Estimate 0.3%

*All release times are EST

* Key events are in bold

GBP/USD for Tuesday, November 15, 2016

GBP/USD November 15 at 11:05 EST

Open: 1.2515 High: 1.2528 Low: 1.2378 Close: 1.2394

GBP/USD Technical

• GBP/USD was flat in the Asian session. The pair has posted considerable losses in the European and North American sessions
• 1.2351 has weakened in support following losses by GBP/USD
• There is resistance at 1.2479

Further levels in both directions:

• Below: 1.2351, 1.2272 and 1.2120
• Above: 1.2479, 1.2620 and 1.2778
• Current range: 1.2351 to 1.2479

OANDA’s Open Positions Ratio

GBP/USD ratio is showing slight movement towards long positions. Currently, long positions command a majority (62%), 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.