On Tuesday, the Office for National Statistics has revealed the UK's inflation rate on the yearly basis which is still quite weak. Nevertheless, slight increase could be noted compared to the previous month, namely from 0.5% to 0.6%. Many economists would prefer to see a rate around 2%. According to the announcement, consumer price index measure of inflation went up from 0.5% in June, and was also pushed by advance in alcoholic drinks and accommodation. Economists, in turn, had expected inflation to remain unchanged during the previous month. The following numbers show the highest inflation since November 2014. Meanwhile, the Retail Price Index, which is another inflation measure, expended by 1.9% in July being highly above forecasts of a rise of 1.6%. In the meantime, RPI is used to set rail fares for next, train fares on around half of UK journeys – including all season tickets and day returns – will increase by 1.9% from next January. Inflation has been a major concern for the Bank of England as it has for other major central banks.
Eventually, the British Pound jumped by about 60 pips following the release. Moreover, the GBP/USD was already modestly higher on general dollar weakness prior to the CPI data, but is now currently rising by about 73 bps to $1.2974.
UK employment data and FOMC Minutes
GBP/USD risks falling back under 1.30
The fundamentals turned in Sterling's favour on Tuesday and along with the strong support cluster around 1.2850 caused a substantial rally in the Cable. Consequently, the Pound almost completely erased all previous week's losses, having closed just on top of the weekly R1. However, technical studies keep giving bearish signals, suggesting that a correction after such a surge is likely to take place. A decline then would cause the GBP/USD pair to fall back under 1.30. On the other hand, a lot depends on the FOMC Minutes today, where a dovish statement could spark more Pound-buying, with the ceiling seen as far as 1.3170, where the weekly R2 coincides with the monthly PP.
Daily chart
Hourly chart
Still no consensus
Bullish sentiment worsened over the day, as 58% of all open positions are now long. Meanwhile, the share of buy orders slid from 57 to 54%.
Indecision appears to be widespread, as the same neutral sentiment is observed among the traders of other brokers. At OANDA, 59% of positions are long and 41% are short. The sentiment at Saxo Bank is now less bullish than before, as the numbers of longs and shorts each take up 54% and 46% of the market, respectively.
Spreads (avg, pip) / Trading volume / Volatility
Votes are equally distributed
Exactly half of traders (50%) believe the British currency is to cost 1.30 or more dollars after a three-month period. The most popular price interval, however, was selected by 16% of the voters, namely the 1.24-1.26, while the second most popular choice implies that the Sterling is to cost between 1.34 and 1.36 dollars in three months, chosen by 14% of the surveyed. At the same time, the mean forecast for Nov 17 is 1.3105.