GBP/USD – Pound Jumps as US Inflation Drags Down Dollar

The British pound has posted gains in the Wednesday session. In North American trade, GBP/USD is trading at 1.3867, up 0.53% on the day. On the release front, January consumer inflation beat expectations. CPI jumped 0.5%, above the estimate of 0.3%. Core CPI remained steady at 0.3%, edging above the forecast of 0.2%. Consumer spending reports in January were dismal. Retail Sales was flat at 0.0%, short of the estimate of 0.5%. Core Retail Sales declined 0.3%, well off the forecast of +0.2%. The sole British event, CB Leading Index, declined 0.2%.

The US dollar has posted broad losses in the North American session, as CPI indicators were higher than expected. Concerns of high inflation was a catalyst for the market sell-off last week, and fears of a resumption in the downward spiral are weighing on the dollar. What about the Federal Reserve? Currently, the Fed is planning three hikes this year, but that could change to four, or even five hikes, if inflation continues to head upwards and the robust US economy maintains its strong expansion.  The new head of the Federal Reserve, Jerome Powell, received a rude welcome from the stock markets, as he started his new position last week. Powell sought to send a reassuring message on Tuesday, saying that the Fed is on alert to any risks to financial stability. However, it is clear that the Fed’s hand is limited when it comes to stock markets moves, and the volatility which we saw last week could resume at any time.

There were no surprises from British inflation numbers on Tuesday. CPI, the primary gauge of consumer spending, was unchanged at 3.0% in January. CPI has hovered around the 3% level since August, well above the BoE target of 2.0%. Wage growth has not kept up with the brisk clip of inflation, putting a further squeeze on the British consumer. This could dampen consumer spending, a key driver of the economy. High inflation is putting pressure on the Bank of England to raise interest rates, and last week the Bank said that it was considering faster and larger rate increases than it had projected back in November. Many analysts have circled May as the date of the next rate increase.

GBP/USD Fundamentals

Wednesday (February 14)

• 8:30 US CPI. Estimate 0.3%. Actual 0.5%
• 8:30 US Core CPI. Estimate 0.2%. Actual 0.3%
• 8:30 US Core Retail Sales. Estimate 0.5%. Actual 0.0%
• 8:30 US Retail Sales. Estimate +0.2%. Actual -0.3%
• 9:30 British CB Leading Index. Actual -0.2%
• 10:00 US Business Inventories. Estimate 0.3%. Actual 0.4%
• 10:30 US Crude Oil Inventories. Estimate 2.8M. Actual 1.8M

Thursday (February 15)

• 8:30 US PPI. Estimate 0.4%
• 8:30 US Empire State Manufacturing Index. Estimate 17.7
• 8:30 US Philly Fed Manufacturing Index. Estimate 21.5
• 8:30 US Unemployment Claims. Estimate 229K
• 9:30 British CB Leading Index. Actual -0.2%
• 10:00 US Business Inventories. Estimate 0.3%. Actual 0.4%.
• 10:30 US Crude Oil Inventories. Estimate 2.8M. Actual 1.8M

*All release times are GMT

*Key events are in bold

GBP/USD for Wednesday, February 14, 2018

GBP/USD February 14 at 11:40 EDT

Open: 1.3893 High: 1.3972 Low: 1.3801 Close: 1.3867

GBP/USD Technical

GBP/USD inched higher in the Asian session but then recorded losses in European trade. The pair has posted sharp gains in North American trade

• 1.3809 is providing support
• 1.3901 was tested earlier in resistance. It is a weak line and could break in the North American session

Current range: 1.3809 to 1.3901

Further levels in both directions:

• Below: 1.3809, 1.3744, 1.3613
• Above: 1.3901, 1.4010, 1.4128 and 1.4271

OANDA’s Open Positions Ratio

GBP/USD ratio is unchanged in the Wednesday session. Currently, short positions have a majority (55%), indicative of trader bias towards GBP/USD reversing directions and moving lower.

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.