UK INFLATION RAISES CONCERNS FOR MORE RATE HIKES

The dollar continued the fall it started yesterday. The fall came as Trump issued the long-waited plan on infrastructure and as the global financial markets stabilized. In his plan, Trump proposes to introduce incentives for cities and states to attract funding for their infrastructure projects. This is a shift from the expected strategy of relying on the federal government for funding.

In the UK, the ONS released January’s CPI data that beat the analysts’ forecasts. The ONS data showed that inflation remained steady at 3.0%, which was higher than the expected 2.9%. As a result, the pound rose by 0.24% against the Euro, 1.44% against the Chinese Yuan, and 0.65% against the dollar. The surprise inflation reading indicates that the BoE could start raising interest rates as early as in May.

In South Africa, the ruling ANC party issued a new order to Jacob Zuma to step down. On Monday, following a 13-hour meeting, Zuma refused to step down leading to the party to issue a fresh order for him to step down. This brings an end to his 9-year rule that has brought down the promising economy. If he continues to hang into power, the parliament will be forced to have a vote of no confidence against him.

EUR/USD

The euro continued to gain against the dollar, in part due to the dollar weakness. The pair has formed an interesting support and resistance channel as shown below. It is currently trading slightly above the short-term moving averages. Also, it’s average directional index is at 30, which is an indicator of a strong rally. However, this could change tomorrow when we receive the EU GDP numbers and the inflation data from the United States.

GBP/USD

Initially, following the release of the inflation data, the pair rose by as much as 0.65%. The pair has lost some of those gains as traders take profits and as they think about the future of interest rates. The pair has now fallen to the support level of 1.3849. There is a likelihood that the pair could continue to drop as focus shifts to the dollar.

NZD/USD

The Kiwi started the day rising to a high of 0.7313 against the dollar. As the day went on, the pair lost the gains and fell to a low of 0.7268. With no major news from New Zealand, the focus among the traders is now strongly on tomorrow’s inflation data. In the meantime, traders should watch out for the pair to cross the 0.7266 support level.