GBP/USD – Pound Rally Pauses as UK Inflation Dips

The British pound has posted small losses in the Tuesday session. In North American trade, GBP/USD is trading at 1.3773, down 0.15% on the day. In economic news, British CPI edged down to 3.0%, matching the forecast. In the US, there were no key events on the schedule. The Empire State Manufacturing Index softened to 17.7, missing the forecast of 18.5 points. This marked the weakest reading since June 2017.

Inflation in the UK dipped to 3.0% in December, but that is still much higher than the Bank of England target of 2 percent. The BoE is reluctant to raise interest rates, especially with the uncertainties over Brexit, but high inflation continues to erode the purchasing power of the British consumer. A weak pound has further dampened consumer spending, although a cheaper pound has been a boon for the export sector. The BoE holds its next policy meeting in February, and as matters currently stand, the BoE is not expected to raise rates.

Brexit negotiations have been difficult and progress has been slow, as Europe is not keen on rewarding Britain for departing the European Union. There are serious divisions within the British government with regard to the talks, and Prime Minister May has to walk carefully, as she has a razor thin majority in parliament. May can ill afford any mistakes, and if her government runs into trouble, she may be forced to call elections, which could shake up the markets and send the pound downwards. The public is almost evenly split on whether Brexit is a good idea, and there are serious concerns that the British economy will take a hit, even if a deal is worked out before the March, 2019 deadline. The parties do not have a lot of time to hammer out a host of trade issues, and all indications are that the negotiations road will be bumpy and difficult. One card that Britain may hold is that the EU, which has been united so far in its position on Brexit, may see the unified front fall apart find that some countries try to cut favorable trade deals with Britain.

 

GBP/USD Fundamentals

Tuesday (January 16)

  • 4:30 British CPI. Estimate 3.0%. Actual 3.0%
  • 4:30 British PPI Input. Estimate 0.5%. Actual 0.1%
  • 4:30 British RPI. Estimate 3.9%. Actual 4.1%
  • 4:30 British Core CPI. Estimate 2.6%. Actual 2.5%
  • 4:30 British HPI. Estimate 4.2%. Actual 5.1%
  • 4:30 British PPI Output. Estimate 0.2%. Actual 0.4%
  • 8:30 US Empire State Manufacturing Index. Estimate 18.5
  • 9:30 British CB Leading Index. Actual -0.2%

*All release times are GMT

*Key events are in bold

 

GBP/USD for Tuesday, January 16, 2018

GBP/USD January 16 at 11:55 EDT

Open: 1.3793 High: 1.3806 Low: 1.3742 Close: 1.3773

 

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.3402 1.3503 1.3655 1.3809 1.3901 1.4010

GBP/USD was flat in the Asian session. The pair ticked lower in European trade and is showing little movement in North American trade

  • 1.3503 is providing support
  • 1.3655 is the next resistance line

Current range: 1.3503 to 1.3655

Further levels in both directions:

  • Below: 1.3655, 1.3503, 1.3402 and 1.3221
  • Above: 1.3809, 1.3901 and 1.4010

OANDA’s Open Positions Ratio

In the Tuesday session, GBP/USD ratio is showing short positions with a majority (60%). This indicative of trader bias towards GBP/USD continuing to move to lower 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.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.