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British Pound Hinges On UK Interest Rate Outlook

Monday, 11 August 2008 22:58:26 GMT

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Written by Terri Belkas, Currency Strategist

The British pound fell throughout the US trading session as UK producer prices rose less than expected in July. Nevertheless, the PPI-output index still rose at the fastest pace since record-keeping began in 1986, suggesting that inflation pressures have yet to abate

Like the Euro at the NY close, the British pound was testing key support at a rising trendline starting from the 2002 lows near 1.9050/65. A break below this point would certainly be a bearish signal, but the 200 SMA on the weekly GBP/USD charts at 1.9022 may be a better point to watch. In fact, since breaking above the 200 SMA in June 2002, the level has served as solid support following multiple tests in August 2002, November/December 2005, January 2006, and March 2006. If GBP/USD breaks below this point, though, it will essentially signal that the pair topped out back in November 2007. From a fundamental perspective, releases on Tuesday and Wednesday will be crucial for GBP/USD, as UK CPI will hit the wires on Tuesday and on Wednesday, the BOE’s Quarterly Inflation Report will be released, though the latter is likely to be more important since forecasts for inflation and growth may be revised.
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