UK inflation holds steady at 3%, euro rallies

Sterling was under immediate selling pressure against the dollar and most other major counterparts on Tuesday morning, after UK inflation unexpectedly held steady in October.

Consumer price inflation stagnated in October, coming in at 3.0%, as cheaper fuel offset the rising cost of food. While today’s steady CPI release is a breath of fresh air to the Bank of England (BoE), it must be kept in mind that consumers are still feeling the pinch because inflation remains at a five-year high.  While BoE Governor Mark Carney has yet again narrowly avoided having to pen out an open letter to the Chancellor, explaining why inflation is more than 1% above target, the question is for how long?

With the trajectory of the British pound tilted to the downside amid mounting political risk and ongoing Brexit uncertainty, Carney and Co could receive an unpleasant surprise, in the form of rising inflation before year end. The pound’s woes are likely to be compounded by the ever-fading prospects of higher UK interest rates, which should be seen as another reason for bears remaining in the vicinity.

Taking a look at the technical picture, the GBP/USD depreciated towards 1.3075 following the inflation report, before recovering back towards 1.3100. Technical lagging indicators such as the MACD and 50 Simple Moving Average reinforce the bearish daily outlook on the pair. Bears need to secure a daily close below 1.3050, which may encourage a further decline towards 1.3000 and 1.2960, respectively. Alternatively, a technical bounce towards the 1.3150 resistance level, could present a fresh opportunity for sellers to jump back to target 1.3050 and 1.3000, respectively.

Page 1 of 2