GBP/USD – Pound Dips Despite Inflation Climbing 3%

The British pound has lost ground in Tuesday trade. In the North American session, GBP/USD is trading at 1.3174, down 0.58% on the day. On the release front, British CPI edged up to 3.0 percent, matching the estimate. BoE Governor Mark Carney testified before the Treasury Select Committee in London. There are no major US indicators on the schedule. On Wednesday, the UK releases wage growth and unemployment data, and the US will publish Housing Starts and Building Permits.

British inflation continues to accelerate, as CPI, the primary gauge of consumer spending, showed that inflation in September was 3.0% higher than a year ago. This marked the fastest rise in inflation since April 2012. The continuing rise in inflation is primarily due to the weak British pound, which has dropped 12 percent since the Brexit vote in June 2016. The CPI release likely means that the Bank of England remains on track to raise interest rates at its November policy meeting. Inflation was on the mind of lawmakers on Tuesday, who grilled Carney when he testified before a parliamentary committee. Carney said that he expected inflation would peak in October or November, and that the bank had refrained from acting earlier to raise rates in order to lower inflation, saying that high inflation was a “trade-off” in order to hamper the economy.

The Brexit talks are at a deadlock, as the sides have made little progress after several rounds of negotiations. Prime Minister Theresa May is keen to talk trade with the Europeans, but the latter have conditioned trade talks on progress being reached on a number of issues, such as Britain’s payment when it leaves the European Union, the status of the border with Northern Ireland and the jurisdiction of the European Court of Justice on European citizens living in the UK. The two sides remain far apart on all of these issues, and each party has criticized the other for lack of flexibility. The EU holds a summit on Thursday, and could announce that they won’t talk trade with Britain until 2018. The lack of progress means that the possibility of a ‘hard Brexit’, in which Britain would leave with no deal being reached, is growing. BoE Governor Mark Carney acknowledged on Tuesday that the Bank has made contingency plans in case there is no agreement. However, British businesses are lobbying hard for an agreement, and want a 2-year interim period, such as a temporary customs union with the EU, in order to soften the blow of leaving the EU.

GBP/USD Fundamentals

Tuesday (October 17)

• 4:15 BOE Deputy Governor David Ramsden Speaks
• 4:30 British CPI. Estimate 3.0%. Actual 3.0%
• 4:30 British PPI Input. Estimate 1.2%. Actual 0.4%
• 4:30 British RPI. Estimate 4.0%. Actual 3.9%
• 4:30 British Core CPI. Estimate 2.7%. Actual 2.7%
• 4:30 British PPI Output. Estimate 0.2%. Actual 0.2%
• 4:30 British HPI. Estimate 5.0%. Actual 5.4%
• 5:15 External BOE MPC Member Silvana Tenreyro Speaks
• 6:15 BoE Governor Mark Carney Speaks
• 8:30 US Import Prices. Estimate 0.6%. Actual 0.7%
• 9:15 US Capacity Utilization Rate. Estimate 76.2%. Actual 76.0%
• 9:15 US Industrial Production. Estimate 0.3%. Actual 0.3%
• 10:00 US NAHB Housing Market Index. Estimate 64. Actual 68
• 13:00 US FOMC Member Patrick Harker Speaks
• Tentative – US Federal Budget Balance. Estimate -0.9B
• 16:00 US TIC Long-Term Purchases. Estimate 14.3B

Wednesday (October 18)

• 4;30 British Average Earnings Index. Estimate 2.1%
• 4:30 British Claimant Count Change. Estimate 1.3K
• 4:30 British Unemployment Rate. Estimate 4.3%
• 8:00 US FOMC Member William Dudley Speaks
• 8:00 US FOMC Robert Kaplan Speaks
• 8:30 US Building Permits. Estimate 1.25M
• 8:30 US Housing Starts. Estimate 1.18M

*All release times are GMT

*Key events are in bold

GBP/USD for Tuesday, October 17, 2017

GBP/USD October 17 at 11:25 EDT

Open: 1.3250 High: 1.3288 Low: 1.3167 Close: 1.3176

GBP/USD Technical

GBP/USD showed little movement in the Asian session. The pair posted considerable losses in the European session and has dipped lower in North American trade

• 1.3122 is providing support
• 1.3224 has switched to a resistance role after losses by GBP/USD on Tuesday

Further levels in both directions:

• Below: 1.3122, 1.3022 and 1.2904
• Above: 1.3224, 1.3347, 1.3444 and 1.3514
• Current range: 1.3122 to 1.3224

OANDA’s Open Positions Ratio

GBP/USD ratio is showing little movement in the Tuesday session. Currently, long positions have a slender majority (52%), indicative of slight trader bias towards GBP/USD reversing its downward movement and moving higher.

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.