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UK CPI pushed up Sterling

Market Analysis
2017-03-21_12-21-29

GBPUSD, H4

UK inflation spiked to 2.3% y/y in February from 1.8% in the month prior, a three-and-a-half-year high and up on the median forecast for a rise to 2.1% y/y. Core CPI rose to a rate of 2.0% y/y from 1.6%, versus the median forecast for a more modest rise to 1.8%. Input prices rose 19.1% y/y and output prices by 3.7% y/y. The first rise in food prices in 31 months, along with a rise in transport costs, drove the headline gain. Higher y/y price comparisons in fuel prices and much lower y/y levels in the pound have been underpinning price increases. Household incomes haven’t been keeping pace with inflation, and real wages look set to turn negative in the months ahead.

Even though sterling had settled after seeing some choppy price action on news that the PM May will invoke Article 50 on March 29, it has stormed higher in the wake of the inflation data on the view that it may shift the balance at the BoE’s MPC towards hawkish arguments. The UK PPI data that was released at the same time was weaker than expected, however, sterling continues to trade higher.  1.2705 marks the February and the 2017 high as well, with Brexit negotiation phase woes continuing to dominate sentiment. Upcoming Brexit negotiations keep Sterling quite volatile, making regular appearances both at the bottom and at the top of the day’s winners and losers tables.

Interestingly, Cable in the 4-hour chart found support at the 200 period EMA since last week at 1.2339, with the 20 DMA higher at 1.2353 after crossing 200 EMA overnight. Currently cable traded at 1.2460 while a breakout today of 1.2500 might lead to a further strength. The Daily frame has the pair above 20-day MA and close to the 150-day MA at 1.2530 which might provide resistance. The weekly and monthly time frames remain in down trends.

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Andria Pichidi

Market Analyst

HotForex

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