British pound bounces after strong UK CPI data
The British pound rose today after the Office of National Statistics (ONS) published better-than-expected inflation numbers. According to the bureau, consumer prices increased by 0.3% in December after tumbling by 0.1% in the previous month. This led to an annualised increase of 0.6%, which was slightly better than the expected 0.5%. The core CPI also rose by 0.3% and an annualised rate of 1.4%. Similarly, the Retail Price Index (RPI) increased by an annual rate of 1.2% while the PPI input rose by 0.8%. These numbers came a week after the BOE governor warned about the impacts of negative interest rates.
The US dollar declined for the second straight day ahead of Joe Biden’s inauguration. The currency is probably falling because of expectations of more stimulus by the new administration. In her confirmation hearings yesterday, Janet Yellen, the incoming Treasury Secretary, said that the country needed to “act big” to avoid going through a depression. This means that the government will unveil trillions of dollars in spending, which will possibly devalue the currency.
The euro declined slightly after the relatively muted inflation data from the European Union. The data showed that consumer prices increased by 0.3% after falling by 0.3% in November. That led to an annualised decline of 0.3%. The core CPI increased by 0.4% in December and an annual rate of 0.2%. Similarly, excluding energy and food, the prices rose by 0.3%. These numbers were in line with the flash estimates released two weeks ago. Separately, the Canadian dollar is holding steady ahead of the Bank of Canada decision that will come out later today.
The EUR/USD pared back some of the gains made two days ago. It dropped to an intraday low of 1.2115. On the four-hour chart, the pair is at the same level as the 25-day and 15-day moving averages. It also moved slightly below the lower side of the bullish flag while the Relative Strength Index (RSI) has started to point lower. Therefore, the outlook for the pair is neutral. If it drops further, it will be a sign that bears have prevailed. That will open the opportunity for them to eying last week’s low at 1.2052. If it moves back, it will boost the odds of it moving above 1.2200.
The GBP/USD pair bounced back today after the UK inflation data. It is trading at 1.3705, which is along the upper line of the horizontal channel. The price has moved above 25-day EMA and is along the upper line of the Bollinger Bands. The Relative Strength Index and the MACD have also continued rising. Therefore, if it breaks above the current resistance, it will be a sign that bulls have prevailed, meaning that they will start targeting the resistance at 1.3800.
The USD/CAD pair dropped to an intraday low of 1.2698 ahead of the BOC decision. On the four-hour chart, it is below the descending trendline that connects the highest points since December last year. Also, it has moved below the two lines of the Envelope indicator while the signal line of the MACD has made a bearish crossover. Therefore, the pair will likely continue falling as bears target the YTD low of 1.2628.