Greenback weakness temporary

The US dollar managed to regain ground against its major peers, particularly against the sterling as it was hit by inflation concerns.

Greenback
Source: Bloomberg

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.

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