Pound Whip

The Pound took off early in yesterday’s session off the back of weaker than expected CPI figures. Inflation in the UK fell to less than 2% for the first time since 2017. This essentially means that the GBP has gained greater buying power within the UK and also fuels real wage growth- potentially up as much as 1.5% yearly. Nonetheless, weak inflation is widely accepted by economists as a signal for an economy that is slowing down…

Strength failed to be maintained [for the pound] and we saw a massive retracement back below the moving averages. This led to further losses for the pair which fell to the 1.2848 daily support level. Price is currently responding to this level but remains held down by the exponential moving average. While we may see consolidation at this region, a confirmed break below the 1.2848 would see this pair tumble to 1.2788 and potentially 1.2750.

We must however consider that fundamentals such as these are a lagging indicator and represent previous economic data. In the midst of Brexit, one would expect the UK economy to slow to an extent, but what we need to start considering is the potential for the Pound to start picking up strength as suggested by the technical. HSBC have already raised their expectations for a stronger Pound but overall, by the time you see it written into fundamentals, you will have missed out.

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