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GBP/USD Rallies on Better Consumer Inflation

By:
James Hyerczyk
Updated: Aug 18, 2015, 15:34 UTC

The GBP/USD rallied on Tuesday after the Office for National Statistics reported that the U.K.’s inflation rate turned positive in July, with the Consumer

GBP/USD Rallies on Better Consumer Inflation

The GBP/USD rallied on Tuesday after the Office for National Statistics reported that the U.K.’s inflation rate turned positive in July, with the Consumer Price Index rising to 0.1% from June 0.0%. Traders were looking for a reading of 0.0%.

UK

The U.K.’s PPI Input came in at -0.9%, better than the -1.8% estimate and well below the same reading in June. Core CPI was up 1.2%, beating the 0.8% estimate.

The British Pound was also supported by a weak U.S. Building Permits report. It showed a reading of 1.12 million units. Traders were looking for 1.23 million units. Housing starts posted a modest improvement to 1.21 million units. This was slightly better than the 1.19 million unit estimate and June’s reading of 1.20 million units.

The EUR/USD traded weaker despite the disappointing U.S. economic data. Sellers took the Euro lower on concerns about whether the German parliament will support a third bailout package of Greece.

Volume and volatility were light ahead of tomorrow’s U.S. Consumer Inflation report and the release of the latest Fed minutes. The stable yuan also helped support the U.S. Dollar. At this time, traders are torn between whether the economy is strong enough to warrant a Fed rate hike in September, or too weak for an early rate hike.

A strong CPI report could push up the odds for a Fed rate hike since this is a major component in its decision process. This is likely to be supportive for the U.S. Dollar. However, there are still worries that the People’s Bank of China is not finished with its devaluations of the yuan.

Gold prices fell in light trading because of the stronger dollar. Many of its traders are on the sidelines because of Wednesday’s key events. Crude oil was under pressure because of oversupply concerns. Tomorrow’s U.S. Energy Information Administration weekly inventories report is expected to show a modest 400,000 barrel draw down.

Today, all eyes are on the German bailout vote. Tomorrow, the focus will be on the U.S. CPI data and the Fed minutes. 

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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