GBP/USD – Pound Under Pressure Despite Solid UK Inflation Data

The British pound is under pressure, as it fights to stay above the 1.56 line. The pound has already dipped below this level in Tuesday trading. The UK released a host of inflation data earlier in the day, and the readings were positive. However, RICS House Price Balance was very weak. In the US, the major release is the US Federal Budget Balance. The markets will also be monitoring President Obama’s State of the Union Address later in the day.

 The pound continues to struggle, and didn’t get much help from positive inflation numbers. CPI, the key inflation indicator, came in at 2.7%, matching the forecast.  The Producer’s Price Index and Housing Price Index both beat their estimates. These numbers indicate more activity in the UK economy, which is struggling. However, there was some bad news from the RICS House Price Balance, which dropped 4%. The markets had expected a flat reading of 0.0%.

There was an important development at the recent EU meeting in Brussels. After marathon negotiations, EU leaders hammered out a deal to cut the EU budget, for the first time in the bloc’s history. The seven-year budget will be trimmed from 994 billion euros to 960 billion. The cuts are modest in scale, but nonetheless an important step in reigning in spending. The deal is a hard-fought compromise, as it reduces the budget while providing more funds for agricultural aid. Although all EU leaders have signed off on the agreement, it must be approved by the European Parliament, which is by no means certain. European Parliament head Martin Schulz has already stated that the budget will not pass in its current format, so we could see further developments in this matter.

The G-20 meeting will take place later this week in Moscow, and the markets will be keeping a close eye on the important international gathering. A hot topic on the agenda will be the issue of exchange rates. There has been a lot of volatility in currency rates lately – most notably, the sinking yen and the high-flying euro. There is mounting concern about currency wars, as countries increasingly rely on monetary policy to kick-start their flagging economies. Japan is facing criticism about its economic platform, which has helped the yen tumble in a hurry. The yen has shed 20% of its value since October, as the government continues with aggressive monetary stimulus to combat deflation and breathe life into the sluggish Japanese economy. Meanwhile, the Institute of International Finance, which is comprised of leading banks and financial institutions, has urged the G-20 to take steps to avoid the “possible discord on exchange rates”. However, given the need to reach a consensus, analysts expect any statement on currencies from the G-20 to be mild in nature.

GBP/USD for Tuesday, February 12, 2013

GBP/USD February 12 at 13:45 GMT

1.5634 H: 1.5669 L: 1.5573

GBP/USD Technical

The pound continues to lose ground, and is struggling to stay above tne 1.56 line. The support line of 1.5625 has already been breached today, and could face more pressure from the pair. There is stronger support at 1.5568. On the upside, there is resistance at 1.5685. This is followed by stronger resistance at 1.5728.

Current range: 1.5625 to 1.5685.

Further levels in both directions:

• Below: 1.5625, 1.5568, 1.5481 and 1.5395.
• Above: 1.5685, 1.5728, 1.5785, 1.5850, 1.5919 and 1.5975

OANDA Open Positions Ratios

The GBP/USD ratio continues to point to a shift towards long positions. This is reflected in the pair, as the pound has finally flexed some muscle and has moved into the mid-1.56 range. Trader sentiment is strongly biased in favor of long positions, so we could see the pound continue to recover from its recent losses.

GBP/USD is showing a lot of volatility, but the pound has rebounded in the early North American session. Will the upward trend continue?  The volatility could well continue, as the pair has displayed sharp movements in both directions in Tuesday trading. 

GBP/USD Fundamentals

• 00:01 RICS House Price Balance. Estimate 0%. Actual -4%.
• 9:30 British CPI. Estimate 2.7%. Actual 2.7%.
• 9:30 British PPI Input. Estimate 0.9%. Actual 1.3%.
• 9:30 British RPI. Estimate 3.2%. Actual 3.3%.
• 9:30 British Core CPI. Estimate 2.4%. Actual 2.3%.
• 9:30 British HPI. Estimate 3.3%. Actual 2.1%.
• 9:30 British PPI Output. Estimate 0.2%. Actual 0.2%.
• 10:00 British CB Leading Index. Actual 0.1%.
• 12:30 US NFIB Small Business Index. Estimate. 89.0 points. Actual 88.9 points.
• 16:30 FOMC Member Esther George Speaks.
• 19:00 US Federal Budget. Estimate -4.6B.

*Key releases are highlighted in bold

*All release times are GMT

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.