Bumpy ride for GBP/USD on US and UK inflation numbers

By FXstreet.com | Updated July 30, 2014 AAA

FXStreet (London) - GBP/USD has seen a choppy day of trading, first declining on weaker-than-expected UK inflation numbers before recovering, followed by a second decline on higher US inflation numbers.

More space for loose BoE policy

The Office for National Statistics reported that consumer prices index-measured inflation (CPI) grew by 1.5 percent in the year to May 2014, down from 1.8 percent in April. Prices rose less than the consensus expectation of a 1.7 percent gain year-on-year. Sterling fell sharply against its peers on the assumption that the benign inflation data would give the Bank of England room to leave rates low for longer, despite the conspicuously more hawkish tone adopted by BoE governor Mark Carney and deputy governor Charlie Bean in recent comments

According to the ONS, falls in transport services costs, notably air fares, provided the largest contribution to the decrease in the rate. Other large downward effects came from the food & non-alcoholic drinks and clothing sectors. The largest offsetting upward effects came from motor fuels and recreation & culture.

The weaker UK inflation helped to buck a four-day rally in GBP/USD after it climbed to a multi-year highs, breaking through USD1.700 for the first time since 2009.

Data checks GBP gains

The pair recovered through the morning session but declined again on stronger-than-expected US inflation numbers.

Stronger US inflation numbers

The US Bureau of Labor Statistics reported that the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in May on a seasonally adjusted basis. Year-on-year, the all items index increased 2.1 percent before seasonal adjustment.

The BLS reported that the seasonally adjusted increase in the all items index, which was the largest since February 2013, was broad-based. The indexes for shelter, electricity, food, airline fares, and gasoline were among those that contributed. The food index posted its largest increase since August 2011, with the index for food at home rising 0.7 percent. The increases in the electricity and gasoline indexes led to a 0.9 percent rise in the energy index.

GBP/USD is currently trading at USD1.6964, hitting a session-low of USD1.6941 on the UK inflation numbers before testing resistance at USD1.6950 on US data. The pair is currently down 0.09 percent on the session.

You May Also Like

Related Forex Analysis
  1. Forex News

    Weekly Trading Forecast: How Far can the Dollar Go in 2014?

  2. Forex News

    GBP/USD Range in Focus Ahead of U.K. & U.S. 3Q GDP Reports

  3. Forex News

    Sterling between bullish dollar and bearish euro - BBH

  4. Forex News

    US Dollar Targets Fresh Highs versus Euro, but What Could Change?

  5. Forex News

    GBP/USD soft into the closing hours - Scotiabank

Trading Center