GBP/USD – British pound steadies as CPI matches forecast

GBP/USD is almost unchanged in the Wednesday session. In North American trade, the pair is trading at 1.2864, up 0.03% on the day. On the release front, BoE Governor Carney testified on the Financial Stability Report before a parliamentary committee. British CPI dropped to 2.1%, matching the forecast. There are no major U.S. events on the schedule. On Thursday, the BoE releases the credit conditions survey and the U.S. posts unemployment claims and the Philly Fed Manufacturing Index.

The British pound showed strong swings last on Wednesday, as all eyes were on the crucial parliamentary vote on the Brexit withdrawal agreement. Prime Minister May suffered a humiliating defeat, as the deal was rejected by over 200 votes. May won’t have much time to reflect on the loss, as the government faces a no-confidence vote in parliament. Although the move is likely to be defeated, it reflects an emboldened opposition and a government that is in complete disarray, with Britain scheduled to depart the European Union in just six weeks.

Overshadowed by Brexit, the U.K. released CPI, the key gauge of consumer spending. Inflation dropped to 2.1%, the lowest level in almost two years. If the downward trend continues, CPI will fall below the 2% threshold, which is the BoE’s inflation target. For the BoE, weaker inflation means there is less pressure on the bank to raise interest rates in the near future.

The Federal Reserve has changed course on monetary policy, and is sending a much more dovish message compared to a few months ago. What is unusual is the significant discrepancy between current Fed forecasts and market expectations, which could result in volatility in the currency markets, as traders try to figure out what the Fed will do in 2019. The most recent projections from individual policymakers in the Federal Open Market Committee (FOMC) stands at two rate hikes this year, but the markets are expecting the Fed to hold pat and not raise rates in 2019. Moreover, the markets have priced in a rate cut before the end of the year at 28 percent. On Monday, former Fed Chair Janet Yellen said that she expected the Fed to take a breather, saying that it’s ‘very possible’ that the Fed has made its last hike of this cycle.

Strong earnings from BoA and Goldman are driving risk appetite

GBP/USD Fundamentals

Wednesday (January 16)

  • 4:15 BoE Governor Carney Speaks
  • 4:30 British CPI. Estimate 2.1%. Actual 2.1%
  • 4:30 British PPI Input. Estimate -1.5%. Actual -1.0%
  • 4:30 British RPI Input. Estimate 2.9%. Actual 2.7%
  • 4:30 British Core CPI. Estimate 1.8%. Actual 1.9%
  • 4:30 British HPI. Estimate 3.0%. Actual 2.8%
  • 4:30 British PPI Output. Estimate 0.1%. Actual -0.3%
  • 8:30 US Import Prices. Estimate -1.3%. Actual -1.0%
  • 10:00 US NAHB Housing Market Index. Estimate 56. Actual 58
  • 10:30 US Crude Oil Inventories. Estimate -1.4M. Actual -2.7M
  • 14:00 US Beige Book
  • Tentative – British Govt. Confidence Vote
  • 19:01 British RICS House Balance. Estimate -13%

Thursday (January 17)

  • 4:30 BoE Credit Conditions Survey
  • 8:30 US Philly Fed Manufacturing Index. Estimate 9.7
  • 8:30 US Unemployment Claims. Estimate 219K

*All release times are EST

*Key events are in bold

GBP/USD for Wednesday, January 16, 2019

GBP/USD January 16 at 11:45 EST

Open: 1.2860 High: 1.2895 Low: 1.2825 Close: 1.2864

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.2589 1.2706 1.2812 1.2915 1.3047 1.3144

GBP/USD posted small gains in the Asian session. The pair has shown limited movement in the European and North American sessions

  • 1.2812 is providing support
  • 1.2915 is the next resistance
  • Current range: 1.2812 to 1.2815

Further levels in both directions:

  • Below: 1.2812, 1.2706, 1.2589 and 1.2488
  • Above: 1.2915, 1.3047 and 1.3174

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

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.
Kenny Fisher

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