GBP/USD is moving higher and facing tough resistance after PPI Input rose by 3.7%. A rise of only 2.2% was expected, so this is a very big surprise. Inflation continues to be very worrying for Britain.
Last month saw a rise of 1.4% in PPI Input (revised up from 1.1%), the main producer price figure. Also the accompanying figure, PPI Output, exceeded expectations and rose by 0.9%, stronger than 0.7% that was expected.
GBP/USD now trades at 1.6417, above the resistance line of 1.64 (a peak reached a few weeks ago), and under the next close resistance line of 1.6450. These are the highest levels in 15 months.
Producer prices move more erratically than consumer prices, but they’re also on the rise, beating expectations too many times in recent months. This release is important as it serves as a small indicator to next week’s CPI release. The annual pace has already reached 4.4%, very far from the 1-3% target.
The Bank of England decided not to raise interest rates, yet again. The decision, made yesterday, came in sharp contrast to the rate hike by the ECB. Within Britain’s Monetary Policy Committee, there are 3 members who already voted for hike, while others, including governor Mervyn King, oppose it.
The pressure is mounting for a rate hike in May.
GBP/USD already rose before the release. The main driver of the pound, and of other currencies as well, is the weakness of the US dollar. The markets became aware of a possibility that the US government will shut down. Although this already happened twice in the 90s, and didn’t hurt the economy, the headlines from Washington are becoming louder.
Pound/Dollar traded at 1.6386 before the release. It already crossed the peak of 1.64 reached in March earlier in the day, but couldn’t settle above it. Levels above are 1.6450, 1.6520 and 1.67. Below, 1.6280, 1.6110 and 1.60.
For more technical levels and analysis, see the British Pound forecast.