Pound dips as US Retail Sales sizzle

The British pound is trading in negative territory in Wednesday trade. Currently, GDP/USD is trading at 1.3846, down 0.41% on the day.

UK inflation rises

Inflation levels have been moving higher on both sides of the pond, as consumer spending is expected to soar once Covid-19 health restrictions are removed. Investors are attuned to this, and the creeping increases in US Treasury bonds, particularly the 10-year yields, signals that the markets expect inflation to continue to rise. After gains in inflation in the US, Germany and the eurozone, it was the turn of the UK on Tuesday. Headline inflation in January edged up to 0.7%, up from 0.6% beforehand. Core CPI remained unchanged at 1.4%. With the vaccine rollout continuing to gather steam, there is optimism that the UK economy will open up in the near future.

In the US, Retail Sales kicked off the new year with outstanding numbers. The January read showed a gain of 5.9%, after two straight declines. The figure crushed the street consensus of 1.1% and was the strongest gain since May. The sparkling reading can be attributed to an easing in health restrictions, as well as the latest round in stimulus payments. The Biden stimulus package is winding its way through Congress and should be approved in March. The additional stimulus is expected to trigger an increase in consumer spending, a key driver of economic activity.

The FOMC will be released later in the day (19:00 GMT). The minutes are not expected to have much impact on the currency markets, but if the policymakers stray from the ultra-dovish script, we could see some movement from the US dollar.

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GBP/USD Technical

• With GBP/USD dropping, 1.3919 has some breathing room in resistance. Above, there is resistance at 1.3985
• There is support at 1.3734. Below, we find support at 1.3615, where the 50-day moving average (MA) is also located

For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-events/

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