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.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.