The Inflation Report dominates GBP/USD thinking

There is plenty for currency traders to absorb today with the Bank of England inflation report and EU economic summit in Brussels.

Dollar and pound currency
Source: Bloomberg

EUR/USD eyes $1.1340

Discussions revolving around Syriza’s wishes for more flexibility and the Troika’s desire to maintain austerity measures are set to continue today in Brussels. The longer this drags on and the closer we get to the end of February deadlines the more likely we are to see EUR/USD react. For the time being though it is remaining remarkably calm as it continues its lateral move hovering around the $1.1340 level.

The standoff that now exists between German finance minister Wolfgang Schaeuble and his Greek counterpart, Yanis Varoufakis, looks to have moved into a game of wait and see as the Greeks weigh up the limited options available to them.

Slightly further afield the situation in Ukraine is showing no sign of deteriorating and with increasing regularity US politicians are openly asking questions about helping to arm the Ukraine government. It is difficult to believe that Vladimir Putin will take this any other way than an act of aggression and an escalation in Ukraine is the last thing the eurozone needs.

Barclays has stated that it sees a Greek exit from the eurozone as more likely than before. This lateral move looks likely to continue but when a clearer sense of where Greece’s future materialises an aggressive move is assured.

EUR/USD chart

GBP/USD breaks 50-DMA

The long-awaited letter to the Chancellor, George Osborne, from Bank of England’s Mark Carney will be dealt with today. The writing has been on the wall for some time and the circumstances that have seen UK inflation fall below 1%, and move more than 1% away from its 2% target, have been replicated in many global economic regions.

A number of countries around the globe have felt the need to lower interest rates in the last couple of weeks and prospect of the UK raising rates now for the short-term at least seems a mute point.

The spot price for GBP/USD is now $1.5239 and the 50-day moving average has now been broken a couple of times on an intraday basis. From a fundamental point of view there is little reason to increase the perceived value in sterling but a weak set of US retail sales figures this afternoon might help dent dollar values.

GBP/USD chart

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