Brexit continues to hammer the Pound, but recent news has aided Sterling’s rise. Inflation fears and a mild Fed reduction plan did not halt cable’s rise. The BOE’s next move may be influenced by UK inflation. The overall Consumer Price Index outperformed expectations by 5.4 percent year on year in September, while the Core CPI remained stable at 4%.
The Dollar rose early, but a later decrease in rates brought it back down. While Atlanta Fed President Raphael Bostic seemed to believe inflation would linger, Vice-Chair Richard Clarida seemed to expect it would disappear. The FOMC Meeting Notes served to define the narrative, as the Fed set a timeframe for initiating the trimming procedure in mid-November and terminating it in eight months.
The bank stated expressly that it would cut monthly purchases by $15 billion. This steady pace weighed on the Dollar and clarified things. Despite upward revisions, retail sales increased by 0.7 percent in September in the United States, far exceeding the 0.2 percent expected.
Core data also beat estimates. The US consumer’s data encouraging sentiment merely slowed cable’s ascent. The UK statistics have been Pound-positive. The unemployment rate fell to 4.5 percent in August, but wage growth was 7.2 percent year on year.
While August’s manufacturing production increased by 0.5%, it fell short of expectations by 0.4%. Nonetheless, the BoE is moving toward increasing interest rates, maybe as early as November. Borrowing prices may need to rise, according to BOE Governor Andrew Bailey.
David Frost, the UK’s EU exit leader, stated his government’s opposition to any border inspections across Northern Ireland and the UK, in violation of the agreements. Frost mediated Brexit. Fears of a tariff war between the UK and the EU. Despite the controversy, Brussels made some compromises, preserving the Pound bid. Congress avoided an unthinkable US default by delaying the debt ceiling until early December. But markets liked the extra time, pushing the relatively secure greenback lower.
Brexit Squabbles And UK Inflation
Can the EU and UK delay Brexit? Aside from the fact that it is a side issue, market watchers seem to expect that the matter will remain for a long time. Sterling could shine if diplomacy replaced pomposity. But lingering tensions could weigh on the Pound.
Unlike on the continent, COVID-19 outbreaks are not declining in Britain, but their influence on markets is. After the US, the UK’s inflation is crucial for the BOE’s impending move. In August, consumer price inflation topped the bank’s 1-3% target. If prices continue to climb, Sterling might rise substantially, implying a rate hike in November.
A decrease below 3% would relieve the BOE and cool the Pound. Retail sales fell 1.2% in August and are expected to rise in September. Markit will also release its October preliminary Purchasing Managers’ Index.
US Events: Infrastructure Negotiations And The Fed Beige Book
Now that the debt ceiling debate has been postponed, Democrats can focus on the two spending bills. The bipartisan development measure requires no new negotiations, but it is reliant on the passage of a bigger spending deal. The lack of news signals progresses in discussions.
A deal might raise sentiment, while no deal would dampen it. Not this time, according to the Federal Reserve’s “Beige Book.” Bottlenecks relaxing would contribute to calm and pressure on the greenback. Aside from the Beige Book, investors will be watching housing data and unemployment claims to see if they stay below 300,000. Finally, Markit’s October preliminary PMIs will be watched closely, notably their views on inflation.
Overview Of The GBP/USD Chart
GBP/USD CHART. Source: Tradingview.com
Pound/Dollar has risen above the past week’s negative resistance line, and downward movement has slowed. However, the currency pair failed to breach the 50-day SMA. The 100-day SMA also crossed below the 200-day SMA, a bearish sign. Overall, there is more room for failure.
This week’s cable ended at 1.3650. 1.3580, a swing low in July, also kept the pair up in mid-October. 1.34 and 1.3310 come into play later. Resistance is at 1.3750, a late-September swing high. The 200-day SMA is at 1.3840. Above that is 1.3910.