GBP/USD Breaks Resistance on High Inflation

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British inflation stepped up and reached an annual level of 3.7%, significantly higher than 3.3% that was expected. A rate hike is becoming imminent. GBP/USD broke above resistance. The move continues.

GBP USD Chart - Breaking Higher on Inflation

GBP/USD Breakout - Click to enlarge

Inflation has been above the government’s target of 1-3% for a long time. The jump in the producer price index (PPI) reported on Friday, left the pound uncahnged, but the big breakout came after the main figure, CPI, came out significantly above expectations.

Core CPI also surprised and came out higher than expected at 2.9%, and the Retail Price Index (RPI), a figure which relates better to consumers (according to some analysts) came out as expected, at 4.8%, still high.

One member of the MPC, Andrew Sentance, already voted for a rate hike several times, but was alone. In a recent public appearance, the governor Mervyn King expressed concern over inflation. He usually dismissed it. Note that this figure is for December, and the situation might get worse in the report for January, as the higher VAT kicks in.

GBP/USD now trades at 1.6045. It was at around 1.5975 before the release of CPI. This 70 pip jump isn’t the end of story. The currency continues higher. On its way, the pound broke the important resistance line of 1.60. Not only is this a round number, it also served as both support and resistance since August, when it worked as tough peak.

Levels above are 1.6110 and 1.63. Below, 1.5910 and 1.5820 provide support below 1.60. See more technical levels in the British Pound Forecast.

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Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned the significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.

5 Comments

  1. Bob Nielsen on

    A very irrational runup in price on these bad inflation figures. Bulls expect an interest rate rise that the BoE just cant deliver. The UK is on the brink of the double-dip of the recession and a rate rise will tip it over. Furthermore a rate rise will not stop the inflation which is imported rather than domestic. Only productive growth, (as opposed to GDP growth through non-productive public sector activities) will bring about a halt in Sterling’s century long decline. So there will be no rate rise and the UK will at best limp in stagflation. That doesn’t make for an attractive currency. I will enjoy watching this ‘false dawn’ rise turn into a ‘reality bites’ fall.

  2. Thanks for your comment Bob. I also think that the British economy is troubled, and that Mervyn King is between a rock and a hard place…

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