Greatest since 1990 — US inflation hit 6.2%, sending the greenback soaring. GBP/USD fell due to Brexit uncertainty and weak UK growth numbers. Consequently? This week’s data will be crucial for future rate decisions. Consumer prices soared in October, sending the headline CPI to 31-year highs and the Core CPI to 4.6%, far beyond economists’ estimates. After a timid start, investors jumped in to price faster Fed rate hikes. The greenback rose overall.
Will the Fed act quickly? No, said San Francisco Fed Head Mary Daly after the release. According to Saint Louis Fed President James Bullard, two raises are planned for 2022. Bond markets expect a “lift-off” – the first rise in borrowing costs – in June of next year.
On the other hand, Brexit tensions grew. The UK’s trade envoy, David Frost, said he is prepared to use Article 16 of the Withdrawal Treaty to stop the accord, reigniting fears of a trade war. The UK GDP for the q3 came in at 1.3%, below 1.5%, putting pressure on the Sterling. It cast doubt on a December BOE rate hike.
Events In The UK Ready To Shock The Pound
How’s the job market since the furlough plan? The September jobs report on Tuesday could help. Economists forecast a 4.5% jobless rate, unchanged from August, and a 7.2% to 7% YoY pay decline. Two key figures for the BOE as it prepares to make a December rate
The BOE – and the Pound – await the October CPI numbers on Wednesday. In September, headline inflation was 3.1%, and any increase would likely lead to a rate hike. A relapse below 3% may raise doubt on such a move. Beyond the headline CPI, core prices are important. Price factors unrelated to rising energy costs may potentially boost Sterling. Punditry may also be shaken by Friday’s retail sales. After a 0.2% dip in September, a growth of 0.5% is expected in October.
Aside from the crowded economic calendar, Brexit is likely to keep the Sterling moving. The Northern Ireland protocol is still being rewritten, and threats to invoke Article 16 might further weaken the Pound. The adage “no news is good news” still holds for the currency.
U.S. Events: Retail Sales, Fed Speakers
Counter to surveys, Americans have started flocking retailers even before Black Friday. October’s growth is expected to reach 0.7%, matching September’s solid gain. The Control Group is expected to rise only 0.4%, half the previous month’s gain. Increased consumption equals a stronger economy and higher inflation, prompting the Fed to tighten policy sooner. After several impressive months, a modest decrease is possible.
Throughout the week, Fed policymakers will be able to remark on consumption and inflation figures. The governors to watch are Christopher Waller and Vice Chair Clarida. Both types of data tend to be used to influence public policy and market sentiment. When will Congress pass the larger budget? The Democratic Party has been negotiating for months, and a resolution may not come until Thanksgiving.
Analysis Of The GBP/USD
GBP/USD CHART Source: Tradingview.com
Pound/Dollar has fallen to its lowest level in almost ten months, with downward momentum. The 50-day, 100-day, and 200-day SMAs loom lower over the currency pair. Is the British Pound oversold? Not yet, based on the daily chart. The RSI is still over 30, indicating that the market is not oversold.
Immediate support is around 1.3350, the new 2021 trough. Then 1.3310, a late-year swing high. Watch for 1.3190 and 1.3170. The 1.34 support levels are relatively broken. The next key milestone to monitor is 1.3550, which has recently worked both ways. A recovery attempt in early November was followed by 1.3710 and 1.3830.