This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Fresh off the heels of global growth concerns, it seems risk currencies will remain under pressure as economic indicators start to wane again. The sterling had started to show some positive signs as traders began pricing in the possibility of an earlier-than-expected rate hike.
However, CPI data released yesterday seems to have put the brakes on that as inflation stalls. CPI for September was flat month-on-month while the market was expecting a 0.2% rise – this worked out to a 1.2% year-on-year rise compared to expectations of 1.4%.
As a result, GBP/USD slipped back below the $1.6000 handle and retested $1.5900 for the first time since November 2013. Short-term momentum is firmly to the downside and the pair is on the verge of breaking below $1.5900.
On the calendar today, we have jobs numbers out of the UK and any disappointment is likely to mount downside pressure. Perhaps most interesting and relevant to inflation will be average weekly earnings, which are expected to show a 0.7% rise (up from 0.6%). Analysts feel this might be a bit optimistic and a miss will only point to further pressure on inflation.
While the momentum on GBP/USD is certainly to the downside, it just seems a touch oversold to me. I would prefer selling rallies back into the $1.6000 handle.