British Pound Enters the Spotlight as Traders Countdown to U.K.'s Inflation Report
U.K. Consumer Prices (09:30 GMT)
Consumer prices in the U.K. are expected to rise an annualized 4.0 percent in January after climbing 3.7 percent the month prior, while core prices are forecasted to increase 3.1 percent. Indeed, a headline reading in line with predictions will mark the highest level since November 2008. As of late, the British pound has been gaining ground against most major counterparts as interest rate expectations push higher largely due to inflation concerns. Traders are pricing in a 22 percent chance that the Bank of England will hike rates twenty five basis points at its next rate decision meeting on February 10th. With inflation expected to push higher due to the increase in value added taxes, currency traders should not rule out an in line or better than predicted release which will likely lead the pound to push higher against most major currencies. However, a reading less than 3.7percent could lead to a selloff in the sterling as growth concerns remain in light of the governments largest spending cuts since World War II. All in all, the release may stir volatility in the forex markets, but the result may be short-lived as jobless claims will cross the wires on Wednesday.
GBPUSD Daily Chart
Charts Created Using FXCM’s Strategy Trader – Prepared by Michael Wright
GBPUSD: The pair halted its two day decline, but upside risks remain capped by the 10-day simple moving average. As the MACD has yet to reverse course after signaling for losses at the end of last week, I do not rule out a selloff from this area. It is worth noting that our speculative sentiment index stands at -1.37 and signals for additional gains.
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Written by Michael Wright, Currency Analyst
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