Despite kicking off today’s session on the front foot, the pound has fallen back through $1.30 following weak UK inflation data.
CPI December +1.3% vs +1.5% exp. (yoy) and 1.5% in November
CPI December 0% vs +0.2% exp. (mom) and 0.2% in November
Core CPI December +1.4% vs +1.7% (yoy) and 1.7% in November
Data showed that the economic picture in the UK continues to deteriorate ahead of Brexit later this month. With inflation at a three-year low and the UK economy contracting by -0.3% in November, there really is very little for pound traders to cheer right now. The soft readings come just days after BoE Governor Mark Carney gave the biggest hint yet that the central bank is considering loosening monetary policy.
There are already two dissenters on the MPC, when you factor in the dismal data and the uncertain outlook over the UK’s future relationship with the EU, a more dovish bias from the BoE is looking pretty certain and a rate cut imminent.
In a speech earlier today, Michael Saunders added to dovish rhetoric from Carney, Vileghe and Tenreyo. He said that it would be appropriate to maintain an expansionary policy stance and possibly cut rates further.
Levels to watch
In reflection of lower interest rate expectations GBP/USD dropped 30 points following the release, slipping through.
GBP/USD is trading below its 50, 100 and 200 sma on the 4-hour chart whilst the RSI is comfortably over 30 and therefore far from oversold conditions. Momentum is to the downside and the bears are in control.
Support can be seen at $1.2950, this week’s low, followed by $1.29 the Christmas low and $1.2820.
Immediate resistance is at 1.30 followed by $1.3040 and then $1.31.
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