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GBP/USD Extends Losses Below 1.6200 As UK CPI Slows To A 5-Year Low

GBP/USD Extends Losses Below 1.6200 As UK CPI Slows To A 5-Year Low

2014-09-16 08:56:00
Edward Hyon,
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Talking Points:

  • UK CPI (YoY) (Aug): 1.5% Actual versus 1.5% Estimated; 1.6% Prior.
  • UK CPI Core (YoY) (Aug): 1.9% Actual versus 1.8% Estimated; 1.8% Prior.
  • GBP/USD Remains Directionless After UK CPI Figures Came In At Expectation.

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The UK Consumer Price Index (CPI) revealed prices for goods and services, including food and gas, rose by 1.5 percent year-on-year in August compared to 1.6 percent in July. This matched market expectations, but UK inflation has slowed to a 5-year low on food prices. Meanwhile, UK Core CPI, which strips away energy and food prices as it can be volatile, increased 1.9 percent year-on-year in August versus 1.8 percent in July. This edged slightly higher than economists’ forecast. The CPI is the key measure of inflation for the UK and is used by Bank of England as a key gauge in making interest rate decisions. However, DailyFX Currency Strategist Ilya Spivak has mentioned of a limited follow-through as traders may wait for the outcome of Thursday’s Scottish Independence Referendum.

Ahead of the data, the British Pound lost ground against the US Dollar to trade below the critical 1.6200 level. Subsequent to the release of the figures, GBP/USD extended losses as UK CPI figures slowed the most in five-years and in line with expectations.

Progressing ahead, key event risks are ahead for GBP/USD. For instance, Bank of England Minutes are set to be released tomorrow (08:30 GMT), in addition to the high-profile FOMC Rate Decision, which is followed by Janet Yellen’s Press Conference. The times for these critical events can be found on DailyFX Economic Calendar. It isn’t over yet for the British Pound as it faces a condemning Scottish Independence Referendum on Thursday. DailyFX Chief Currency Strategist John Kicklighter says “the lack of clarity on the fallout from this event, secondary concerns of fading BoE rate forecasts and already elevated volatility levels in FX markets is likely to keep the Pound on edge.”

From a technical spectacle, Ilya Spivak mentions near-term support to rest at 1.6217 (14.6% Fib Ret.) and resistance at 1.6320 (23.6% Fib Ret.). He is in favor of a long position for GBP/USD, but Scottish Independence Referendum looms ahead and a “Yes” outcome will bode severely ill on the currency pair. With that key event risk in mind, he remains flat for the time being. Meanwhile according to DailyFX Speculative Sentiment Index, the ratio of long to short positions in the GBP/USD stands at 1.21 as 55 percent of FXCM retail traders are long.

GBP/USD 5 Minute Chart

GBP/USD Extends Losses Below 1.6200 As UK CPI Slows To A 5-Year Low

Daily Chart - Created Using FXCM Marketscope 2.0, Volume Indicator Available Here

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Edward Hyon, DailyFX Research Team

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