GBP news

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UK January CPI Inflation Rate Rises To 1.8% From 1.6%, Below 1.9% Consensus

UK consumer prices fell 0.5% in January with the year-on-year rate increasing to 1.8% from 1.6% the previous month given that prices had fallen more sharply in January 2016.

The annual increase was below consensus forecasts for a steeper increase to 1.9%, although this was still the highest annual rate since June 2014.

The core inflation rate was unchanged at 1.6% compared with expectations of an increase to 1.7% while the Retail Prices Index (RPI) rate increased to 2.6% from 2.5% compared with consensus forecasts of a sharper increase to 2.8%.

The CPI(H) year-on-year reading which has a different methodology for housing costs and will become the benchmark rate from next month increased to 2.0% from 1.7% previously.

There was upward pressure on the annual inflation rate from rising prices for motor fuels and to a lesser extent food prices which were unchanged this year having fallen in January 2016. Prices in the hotels and restaurants sector also increased on the month.
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GBP/USD Extends Move to the Downside

GBP/USD has extended Tuesday’s losses and is down 0.44% in today’s trading, currently holding near the 1.2410 level.

Technical indicators are still indicating the bias is to the downside, with the Stochastic moving lower and the Moving Average Convergence-Divergence indicator’s cross to the downside still intact. Near term support at last Friday’s 1.2440 low has been broken, leaving the next support to watch at the February 7 low at 1.2346.

In today’s economic news, the number of people in employment in the UK increased by 37,000 in the three months to December 2016. Unemployment fell by 7,000 to 1.6mn in the three-month period. The unemployment rate was in line with expectations and held at 4.8% for the month which is the lowest rate since the third quarter of 2005.

The average earnings data was weaker than expected with a headline increase of 2.6% in the year to December from 2.8% the previous month and compared with expectations of 2.8% for the month. Excluding bonuses, there was a decline to 2.6% from 2.7% previously.
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Pound Slips on Disappointing Earnings Data

The British Pound fell against its major rivals on Wednesday, February 15 after it was shown that UK companies are not raising pay rates to the extent economists were expecting.

Latest labour market data from the ONS shows that the Average Earnings Index, with bonuses included, rose at 2.6% in December.

Economists had forecast a rise of 2.8%, in line with the previous month’s reading.

The Pound slipped against all major G10 currencies on the miss as the data suggests the Bank of England will be in no mood to raise interest rates in light of the setback in earnings.

Other data in the release were good though with the unemployment rate staying steady at multi-year lows at 4.8% and the amount of people seeking benefits falling an impressive 42.4K.

The economy is therefore creating work, but there is a large enough pool of candidates out there to ensure that pay rises remain subdued.

Only when a labour shortage is seen will pay packets start rising, and only then will the Bank of England consider raising interest rates… and only then will the Pound find the upward support from interest rates it requires to stage a meaningful recovery.

This is the dynamic that is currently in play at present.

"The markets are focusing on wage data as it will be a key driver of monetary policy this year. If wage growth rises sharply then central banks should hike interest rates at a faster clip than currently expected. However, today’s weaker wage data could take the pressure off the BoE, hence the decline in UK bond yields this morning, which has also weighed on the Pound," says Kathleen Brooks at City Index in London.

Of course, there is also a chance that companies are using Brexit to justify not paying workers more and with years of negotiations ahead this situation may not change.

This adds to the sense that Sterling is likely to struggle going forward.

Pound Sterling fell in the wake of below-expectation inflation data on Tuesday February 14 as the currency now appears more reactive to data and Bank of England interest rate expectations than it has for some time now and not just driven by utterances made by politicians regarding Brexit.
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January 2017 UK retail sales -0.3% vs 0.9% exp m/m

Details of the January 2017 UK retail sales data report 17 February 2017
  • Prior -1.9%. Revised to -2.1%
  • 1.5% vs 3.4% exp y/y. Prior 4.3%. Revised to 4.1%
  • Ex-fuel -0.2% vs 0.7% exp m/m. Prior -2.0%. Revised to -2.2%
  • 2.6% vs 3.9% exp y/y. Prior 4.9%. Revised to 4.7%


GBP/USD forecast for the week of February 20, 2017, Technical Analysis

The GBP/USD pair had a slightly negative week, but found support on Friday near the 1.24 level. This is an area that must hold to continue the uptrend, the we had started just a couple of weeks ago, if we can get a bullish move, I’m willing to buy this market but I recognize that we could very well pull back to build up more momentum. It’s possible that we are trying to reverse the overall trend, but right now it’s early in that move. Longer-term traders are going to struggle.




GBP/USD Weekly Forecast February 20-24

GBP/USD ended a choppy week of trading last week on a down note, losing 0.66% with a settlement at 1.2405 on Friday, which represents a new closing low for the decline from the early February high. For the week overall, GBP/USD fell 0.62%.

Friday’s move to the downside in the pair was triggered by a miss on retail sales data. UK retail sales volume fell 0.3% in January and the data for the second month running was much weaker than consensus forecasts which had called for a 0.9% increase. The December data was revised to show a 2.1% decline compared with a 1.9% drop reported previously.

There was a decline of 0.4% in the latest three-month period compared with the previous three months and annual growth slowed to 1.5% from 4.3% previously and this was the slowest rate of increase since November 2013.

The retail sales report, along with average weekly earnings growth slowing, suggests the impacts of Brexit may finally be materializing. Last week, average earnings data came in weaker-than-expected, with a headline increase of 2.6% in the year to December from 2.8% the previous month and compared to expectations of 2.8% for the month. Excluding bonuses, there was a decline to 2.6% from 2.7% previously.

As a result of Friday’s move to the downside in GBP/USD, the 100-day moving average was broken. Although the Stochastic is approaching oversold territory, the price momentum indicator is not yet fully oversold, thus there appears to be more room to move on the downside and near term and support at last Wednesday’s 1.2383 low appears vulnerable to a break heading into this week.
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February 2017 UK CBI industrial trends orders 8 vs 3 exp

Details from the February 2017 UK CBI industrial trends report 20 February 2017

  • Prior 5
  • Selling prices 32 vs 28 prior
  • Export orders -10 vs -9 prior
  • Expectations 33 vs 26 prior


Q4 2016 UK GDP 1st revision 0.7% vs 0.6% exp q/q

Details from the Q4 2016 UK GDP 1st revision data report 22 February 2017

  • Prelim 0.6%. Q3 0.6%
  • 2.0% vs 2.2% exp y/y. Prelim 2.2%. Q3 2.2%
  • Exports 4.1% vs 2.0% exp q/q. Q3 -2.6%
  • Imports -0.4% vs 0.3% exp q/q. Q3 1.4%
  • Private consumption 0.7% vs 0.7% exp q/q. Q3 0.7%
  • Business investment -1.0% vs 0.1% exp q/q. Q3 0.4%
  • -0.9% vs 0.3% exp y/y. Q3 -2.2%
  • GDP deflator 0.7% vs 0.3% q/q in Q3
  • 2.8% vs 1.8% prior y/y
  • Dec index of services 0.2% vs 0.1% exp m/m. Prior 0.3%
  • 0.8% vs 0.8% exp 3m/3m. Prior 1.0%


Investors Start to take a Shine to Pound as Sentiment Measures Improve

Analysts at Lloyds Bank’s Commercial Banking devision have written to clients saying they believe investors are starting to shift opinion on the Pound, for the better.

Having taken a drubbing since late 2015, the Pound has stabilised since reaching lows at 1.1983 against the Dollar on January 15 2017.

The steady sideways action in a broad range between 1.22 and 1.2650 since October is initself indicative of a potential bottoming.

However, for analysts at Lloyds it is the risk that markets are attaching to Sterling that is of interest and they have written to clients expressing “intrigue at the dynamics of the GBPUSD risk reversals in recent weeks.”

The bank notes that the 1-month, 3-month, 6-month and 1-year structures - which effectively represent the cost of GBPUSD calls relative to their equivalent puts, and are widely used as gauges of sentiment - have all rallied in favour of calls since mid-January.

“These moves have occurred in an environment that, to us, seems more conducive to the exact opposite,” says analyst Robin Wilkin.

GBPUSD has declined from its 1.2706 high on 2-February down to test interim range support at 1.2400-1.2345, while key event risks – including the triggering of Article 50 and March’s FOMC meeting – that have potential to be GBP negative / USD positive are now in the market’s focus.

Indeed, we have just reported on research from analysts at SEB that suggests while the Pound is undervalued it still has further weakness to absorb.

Lloyds reckon though that the well-developed 1.20–1.28 range is likely to hold for the time being, aided by profit-taking at the lows (an entrenched short position remains prevalent in the market) and capped by pessimistic sentiment at the highs.

“This may be the first tentative sign that investors are slowly shifting their opinion on the hard-hit Pound,” says Wilkin.
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GBP/USD forecast for the week of February 27, 2017, Technical Analysis

The GBP/USD pair rallied during the week, but continues to find resistance above the 1.25 level. That’s not a huge surprise, this is an area that has attracted a lot of attention. However, I think that the 1.24 level continues to be very supportive, and with the choppiness that seems to be coming into this market place, it’s probably better to trade this market off short-term charts rather than the weekly period. Longer-term, I believe that the buyers are going to eventually win, but right now we are forming what could be the base of a turnaround.


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