GBP/USD – Pound Higher as British CPI Surprises Markets

The British pound has posted gains in the Tuesday session. In North American trade, GBP/USD is trading at 1.3892, up 0.39% on the day. On the release front, British CPI was unchanged at 3.0%, edging above the forecast of 2.9%. There are no major events out of the US. On Wednesday, the US releases inflation and retail sales data. Traders should be prepared for some movement from the pair during the North American session.

There were no surprises from British inflation numbers on Tuesday. CPI, the primary gauge of consumer spending, was unchanged at 3.0% in January. CPI has hovered around the 3% level since August, well above the BoE target of 2.0%. Wage growth has not kept up with the brisk clip of inflation, putting a further squeeze on the British consumer. This could dampen consumer spending, a key driver of the economy. High inflation is putting pressure on the Bank of England to raise interest rates, and last week the Bank said that it was considering faster and larger rate increases than it had projected back in November. Many analysts have circled May as the date of the next rate increase.

A key factor in last week’s market turbulence was investor concern over more rate hikes due to inflation. Given this concern, it’s likely that the US CPI and Core CPI releases on Wednesday will be a market-mover. The markets will be glued to the inflation indicators, and if inflation numbers are higher than expected, we could see some volatility from the US dollar as well as the stock markets.

GBP/USD Fundamentals

Tuesday (February 13)

  • 4:30 British CPI. Estimate 2.9%. Actual 3.0%
  • 4:30 British PPI Input. Estimate 0.7%. Actual 0.7%
  • 4:30 British RPI. Estimate 4.1%. Actual 4.0%
  • 4:30 British Core CPI. Estimate 2.6%. Actual 2.7%
  • 4:30 British HPI. Estimate 4.9%. Actual 5.2%
  • 4:30 British PPI Output. Estimate 0.2%. Actual 0.1%
  • 6:00 US NFIB Small Business Index. Estimate 106.2. Actual 106.9
  • 8:00 US FOMC Member Loretta Mester Speaks

Wednesday (February 14)

  • 8:30 US CPI. Estimate 0.3%
  • 8:30 US Core CPI. Estimate 0.2%
  • 8:30 US Core Retail Sales. Estimate 0.2%
  • 8:30 US Retail Sales. Estimate 0.5%

*All release times are GMT

*Key events are in bold

GBP/USD for Tuesday, February 13, 2018

GBP/USD February 13 at 12:00 EDT

Open: 1.3837 High: 1.3924 Low: 1.3833 Close: 1.3892

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.3613 1.3744 1.3809 1.3901 1.4010 1.4128

GBP/USD posted small gains in the Asian and European sessions. The pair continues to move higher in North American trade

  • 1.3809 is providing support
  • 1.3901 was tested earlier in resistance. It is a weak line and could break in the North American session

Current range: 1.3809 to 1.3901

Further levels in both directions:

  • Below: 1.3809, 1.3744, 1.3613
  • Above: 1.3901, 1.4010, 1.4128 and 1.4271

OANDA’s Open Positions Ratio

GBP/USD ratio is almost unchanged in the Tuesday session. Currently, short positions have a majority (55%), indicative of trader bias towards GBP/USD reversing directions and moving lower.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Fed Chair Powell Says CB Will Remain Alert to Financial Stability Risks

New Federal Reserve Chairman Jerome Powell on Tuesday said the central bank “will remain alert” to any risks to financial stability, marking his maiden attempt to soothe financial markets.

In brief prepared remarks at his swearing-in ceremony, Powell reminded the audience that Washington made enormous strides in its effort to strengthen the banking sector in the wake of the financial crisis.

“The financial system is incomparably stronger and safer, with much higher capital and liquidity, better risk management, and other improvements,” Powell said.

The new Fed chairman has had a busy 10 days in office. Stock prices SPX, -0.17%   have gyrated, and analysts are debating whether there will be a “Powell put” to calm the market’s frayed nerves.

via MarketWatch

Oil Drops Ahead of Weekly Inventories

Oil prices slid more than 3 percent on Friday as U.S. futures fell below $60 a barrel for the first time since December on renewed concerns about rising crude supplies.

West Texas Intermediate graph

U.S. and Brent crude futures have slid more than 11 percent from this year’s peak in late January. Brent fell nearly 9 percent for the week while U.S. crude dropped 10 percent, the steepest weekly declines since January 2016.

Futures posted a sixth straight day of losses, wiping away the year’s gains in a string of high-volume trading sessions, pressured by stronger-than-expected supply figures and a surprising ramp-up of the North Sea Forties Pipeline, which shut earlier in the week.

Turmoil on Wall Street also pressured crude. During the trading session, the S&P 500 stock index .SPX fell to its lowest level since Oct. 5. [.N] The S&P recovered to end the day higher, which helped oil bounce off session lows.

via Reuters

Canadian Trade Problems Don’t Stop with NAFTA

Trade challenges from U.S. firms will continue to cause turbulence for Canada even if talks to modernize NAFTA are successful, a senior Canadian government official said on Tuesday.

Canada sends 75 percent of its goods exports to the United States and is vulnerable to what Ottawa complains is increasing U.S. protectionism since President Donald Trump took power in January 2017.

Talks to update the North American Free Trade Agreement are moving slowly as Canada and Mexico seek to address a series of radical U.S. demands for change. The negotiations were supposed to wrap up by end-March look set to overrun by months.

usdcad Canadian dollar graph, February 13, 2018

“Even if a new NAFTA were to be signed tomorrow I think we would still face a lot of turbulence in our relationship with the United States on trade,” said Timothy Sargent, the top bureaucrat in Canada’s Trade Ministry.

Sargent, speaking to an Ottawa conference organized by the Canadian Global Affairs Institute, noted recent U.S. moves to impose duties on Canadian softwood lumber, commercial airliners and some paper products. All were prompted by complaints from American firms.

Sargent also cited Trump’s recent move to place duties on imports of solar panels.

via Reuters

Russian Gold Production Hits 306.9 Tonnes in 2017

Russia produced 306.9 tonnes of gold in 2017, up from 288.5 tonnes in 2016, the finance ministry said on Tuesday.

Production for the period included 253.9 tonnes of mined gold compared with 237.8 tonnes in 2016, the ministry said in a report.

Silver production totalled 1,044.3 tonnes in the January to December period, down from 1,088.9 tonnes in 2016, the ministry said.

via Kitco

Nikkei Ends Lower After Rise of JPY

The Nikkei stock index ended at a four-month low Tuesday, quickly giving up earlier gains as the yen’s advance against the U.S. dollar hurt export-related issues.

The 225-issue Nikkei Stock Average ended down 137.94 points, or 0.65 percent, from Friday at 21,244.68, its lowest close since Oct. 13. Japanese financial markets were closed Monday for a national holiday. The broader Topix index of all First Section issues on the Tokyo Stock Exchange finished 15.19 points, or 0.88 percent, lower at 1,716.78.

Decliners were led by rubber product, transportation equipment and marine transportation issues.

The Nikkei index rose as much as 300 points in the morning after U.S. shares extended their rebound overnight following steep losses last week. In addition, reports over the weekend that Bank of Japan Governor Haruhiko Kuroda will be reappointed led investors to believe that the central bank would continue with monetary easing, analysts said.

The reports “served as a cue for stock buying,” said Shingo Ide, chief equity strategist at the NLI Research Institute.

The 73-year-old Kuroda, expected to remain at the helm until 2023, has set a target of 2 percent inflation and carried out a series of bold monetary easing steps such as increased purchases of government bonds and risky financial assets.

via Mainichi

US Inflation Report Front and Center After Market Plunge

Wednesday’s report on the U.S. consumer price index will be the most closely watched in recent memory, with investors seeking to understand the recent plunge in the stock and bond markets. They’ll probably need to look beyond the main numbers for the full story.

The core CPI, which excludes food and energy, rose 1.7 percent in January from a year earlier, compared with 1.8 percent in December, according to the median projection of economists ahead of the Labor Department data. Viewed another way, though, inflation may be higher: A 0.2 percent monthly rise in the same index, as economists forecast, would result in a three-month annualized rate of 2.3 percent, according to analysts at Wells Fargo Securities. That would match the fastest pace since February 2017.

On top of that, jittery financial markets could convulse on any sign that inflation is exceeding expectations at a rate that may spur the Federal Reserve to quicken its plans for tightening. The threat of higher interest rates after strong job and wage figures on Feb. 2 sent Treasury yields spiking and started a rout in equities that pushed them into the first correction in two years. Bonds and stocks have been in a tug-of-war since, as battered equity investors seek the haven of fixed income, driving yields back down.

S&P 500 futures pointed to a retreat in stocks at the market open after two days of gains, while bonds climbed, with the yield on the 10-year Treasury note declining after touching 2.89 percent on Monday.

via Bloomberg

Fed’s Mester Says Stock Market Volatility Not Damaging for Economic Strength

The recent stock market sell-off and jump in volatility will not damage the economy’s overall strong prospects, Cleveland Federal Reserve president Loretta Mester said on Tuesday in warning against any overreaction to the turbulence in financial markets.

“While a deeper and more persistent drop in equity markets could dash confidence and lead to a pullback in risk-taking and spending, the movements we have seen are far away from this scenario,” Mester said of a market rout that cut more than 10 percent from major stock indexes.

That occurred, Mester said, only after a record-setting run, and “for now, I expect the economy will work through this episode of market turbulence and I have not changed my outlook. In my view, the underlying fundamentals supporting the economy are very sound.”

Her remarks to the Dayton Area Chamber of Commerce are an important signal from one of the Fed policymakers who has voiced stronger concerns about financial market stability and the prospects that the central bank may risk a run-up in inflation by not raising rates quickly enough.

She said that as of now policy should tighten at a pace “similar to last year’s,” when the Fed raised rates three times. The median outlook among policymakers is currently for three rate increases this year as well.

via CNBC