British consumer prices are still above target. CPI dropped from 3.2% to 3.1%, exactly as expected. Other inflation related figures were softer than predicted, and the immediate reaction of the Pound was a small drop.
Core CPI unexpectedly dropped from 3.1% to 2.6%, showing that the higher inflation isn’t really strong. Also the RPI (Retail Price Index) which is often considered a good gauge for what consumers actually pay, dropped from 5% to 4.8%. All the figures are annualized. GBP/USD reacted with a dip:GBP/USD dropped by 30 pips after the release, from 1.5645 to 1.5615, but was quick to erase these losses. It’s currently enjoying a weaker dollar, so the fall is limited.
Earlier this week, GBP/USD managed to recover some of its gains and bounce of the strong support line of 1.5520. These gains were limited within the current trading range, that is capped at 1.5720.
A breakout on the upside will find resistance at 1.5833, which is now only a minor line of resistance, and then by the round psychological 1.6000 mark, which capped the pair before Bernanke’s move, and was the highest level in 6 months.
Below, 1.5470 that held the pair a few weeks ago now is the next immediate line of support. More significant support is found at 1.5350, and it’s followed by 1.5230.
The bears and bulls are struggling on the Pound, with no decisive winner. Tomorrow is a light day in the markets, but one important British event stands out – the MPC Meeting Minutes. It will be interesting to see if Andrew Sentance continues to be the sole member voting for a rate hike, or if someone else joined him in the last meeting.
Although Mervyn King returned to dismissing inflation and painting a grim view for the economy, more members concerned about inflation mean that he might have to change his mind. But as it seems now, this won’t be necessary.
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