GBP/USD – Moves Above 1.51 Level After UK Inflation Releases

GBP/USD is showing some movement in Tuesday trading, as the pair has pulled above the 1.51 line. The UK released a string of inflation data on Tuesday. CPI, one of the most important economic indicators, matched the forecast. PPI Input posted its sharpest rise in almost two years. The markets were pleased with today’s US housing figures, which were positive.

British inflation figures continue to point to robust inflation in the UK economy. CPI, which has posted four straight readings of 2.7%, inched up to 2.8%, matching the forecast. PPI Input posted a strong gain of 3.2%, way above the estimate of 1.7%. This was the index’s best showing since April 2011. RPI, which has also been steady in recent readings, rose 3.2%, just below the estimate of 3.3%. Core CPI gained 2.3%, beating the estimate of 2.2%. HPI posted a gain of 2.2%, missing the forecast of 2.6%. Finally, PPI Output looked sharp, rising 0.8%. The estimate stood at 0.2%. There are three major releases on Wednesday – Claimant Count Change, MPC Meeting Minutes and the Annual Budget Release. In the US, there was good news as Building Permits hit a multi-year high of  0.95 million, beating the estimate of 0.93 million. Housing Starts came in at 0.92 million, matching the forecast.

The island country of Cyprus is usually not the focus of the financial markets, but what was supposed to be a relatively small bailout for a struggling Eurozone member has sent the markets spinning. Over the weekend, a bailout agreement was reached over the weekend between the EU, IMF and the Cypriot government in the amount of 10 billion euros. However, a controversial provision in the agreement has threatened to derail the bailout. Under the terms of the bailout package, deposit holders in Cypriot banks would be levied with a one-time tax, between 6.7% and 9.9%, depending on the size of the deposit. This tax is intended to raise 5.8 billion euros, covering more than half of the 10 billion euro bailout. Taxing bank deposit holders is an unusual step, and the markets fear that it could result in depositors in other Eurozone countries with high debts transferring their funds to countries such as Germany. Cypriots were understandably fuming, as this marked the first time in the Eurozone debt crisis that bank depositors were being asked to take a haircut as part of a bailout. The Cypriot parliament was scheduled to meet in an emergency session on Tuesday to vote on the bank deposit levy and the bailout, but the drama continues, as the vote has been postponed.

In the US, the Federal Reserve meets for a policy meeting on Wednesday. The markets are watching to see if the Fed continues the current round of QE. With the US recovery looking stronger and unemployment nudging lower, there has been speculation that the Fed might wind down or modify its asset purchasing program. However, Fed head Bernard Bernanke and other senior officials have insisted that QE will continue. If the Fed surprises the markets, we can expect some volatility from the US dollar.

GBP/USD for Tuesday, March 19, 2013

1.5115 H: 1.5145 L: 1.5074

GBP/USD Technical

The pound has posted some gains against the US dollar in Tuesday trading. The pair is facing resistance at  1.5138. This is a weak line, and could face further activity if the pound continues to strengthen. There is stronger resistance at 1.5203. On the downside, 1.5053 is providing support. This is followed by support just below the 1.50 level, at 1.4988.

• Current range: 1.5053 to 1.5138

Further levels in both directions:

• Below: 1.5053, 1.4988, 1.4880, 1.4818, 1.4766 and 1.4618
• Above: 1.5138, 1.5203, 1.5309, 1.5392 and 1.5461

OANDA’s Open Positions Ratios

The GBP/USD ratio has been quiet this week, as the ratio is almost unchanged in Tuesday trading. This is reflected in the current movement of the pair, which is showing some activity but has not been able to sustain substantial momentum in either direction.  The pair shrugged off mostly positive data out of the UK and the US earlier today. On Wednesday, the US Federal Reserve will meet and releases a Monetary Policy Statement, so we could see increased activity in GBP/USD.

GBP/USD Fundamentals

• 9:30 British CPI. Estimate 2.8%. Actual 2.8%
• 9:30 British PPI Input. Estimate 1.7%. Actual 3.2%
• 9:30 British RPI. Estimate 3.3%. Actual 3.2%
• 9:30 British Core CPI. Estimate 2.2%. Actual 2.3%
• 9:30 British HPI. Estimate 2.6%. Actual 2.2%
• 9:30 British PPI Output. Estimate 0.2%. Actual 0.8%
• 12:30 US Building Permits. Estimate 0.93M. Actual 95M
• 12:30 US Housing Starts. Estimate 0.92M Actual 92M

*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.