The pound spiked briefly higher in early trade on Wednesday following upbeat CPI reading, however was unable to hold its gains and has slipped back through $1.30. Whilst UK inflation declined -0.3% mom (vs. -0.4% exp) on an annual basis prices increased a better than expected 1.8%, up from December’s 1.3%. This was the first time that inflation has risen in 6 months
This is still below the BoE 2% target, however the central bank will have no reason to lower interest rates at its next meeting. The upbeat inflation data comes following encouraging signals from the UK labour market, where wages topped pre-financial crisis levels in the three months to December. The British economy also grew by more than analysts had forecast and UK house prices increased by 2.2% vs 1.7% the previous year. The UK economy is starting to show signs of recovery after Brexit uncertainty dragged across the previous year.
Any gains in the pound, however, will continue to be capped or eroded by Brexit trade deal fears. As a reminder, Michel Barnier has rejected UK demands for a Canada style deal. The UK has also rejected any role of the ECJ in the future trading relationship. As the two sides have toughened their stance ahead of the March start date for talks, fears of no trade deal being agreed are rising.
Dollar steady ahead of Fed minutes
The dollar is holding steady versus its major peers in early trade. The greenback has been supported by safe haven flows in recent sessions, as anxieties surrounding the impact coronavirus could have on the global economy increase.
Apple warned that it may miss its revenue target as coronavirus was affecting both supply and demand of iPhones in China. German ZEW investor confidence survey also highlighted concerns over coronavirus impacting exporters.
Today attention will turn to the release of the minutes from the Federal Reserve monetary policy meeting. Not much happened at the meeting. Federal Reserve Chairman Jerome Powell didn’t say anything new and no action was taken. As a result, investors are not expecting to see any major signals in the minutes.
Levels to watch
GBPUSD slipped below the key psychological level of $1.30. It trades below its 200 & 100 sma and is just testing its 50 sma around $1.2980 on the 4 hour chart.
Immediate support can be seen at $1.2980 (50 sma) prior to $1.2950 (low 13th Feb) $1.2865 (low 10th Feb).
Resistance is seen at $1.3050 (18 Feb high &200 sma) before $1.3085 trend line resistance prior to $1.32 (high 13th Feb).