Pound Signals Uptrend on Lower Than Expected Inflation

British MoneyThe Pound currency is showing signs of weakness in the past two weeks after the negative impact of inflation on consumer spending and slowdown in the economy.

On the contrary, there is an increase in demand for safe-haven assets like for instance Gold, Swiss Franc, and Yen. It is because of the geopolitical tensions between the United States and North Korea.

In the present scenario, the GBP/JPY currency pair has lost more than 500 pips since 1st August 2017 to trade at 141 levels. However, it is speculated for the reversal in Pound, and the reason for the same is discussed below.

In a report submitted by UK Office for National Statistics, it is written there is an increase of 26% Y-O-Y in headline consumer price index in July. The figures are more or less the same as compared to last month, but it is lower than 2.7% as anticipated by the analysts. At the moment, the data does not look good.

BBC Business

In the past few months, there has been a considerable decline in the consumer spending in the United Kingdom and the main reason is that of sharp inflation rise. At the moment, the economy of UK is driven by the domestic demand. Even the slightest drop in the inflation would attract spending which in turn would lead to betterment in economic activity. The analysts are of the view that headline inflation would touch 3% before it starts cooling down. Now, the inflation has risen than expectation, and the scenario is extremely optimistic for the economy as well as Pound currency.

The Claimant Count Change Data is released by Office for National Statistics which throws light on the decline in people who claim unemployment benefits in July. While analysts expected an increase of 3,200 people arguing for the benefits, the actual figure came at -4,200. In the last month, there is a rise in people claiming for unemployment benefits where the unemployment rate dipped to 4.4% from 4.5% earlier in this month. The market anticipated an unemployment rate of 4.5 percent.

On the other hand, the currency Yen is losing its strength because there is an increase in risk appetite because the rising tension between the United States and North Korea eased on last Tuesday. The news agency of North Korea has submitted a report in which it is mentioned their leader Kim Jong Un has temporarily suspended the decision to attack US territory of Guam, and he is now monitoring the situation at the moment. Hence, we can expect the currency pair JPY/GBP to rally in coming days.

On a technical level, if you see the historical price chart below, you will find the currency cross has bounced the support at 141.30. The momentum indicator indicates the reversal which is making higher lows. Hence we can expect the currency pair to rise high towards the next resistance level of 145.20.

GBP/JPY Pair - August 17th 2017

GBP/JPY Pair – August 17th, 2017

To gain from the predicted uptrend, it is recommended to create a LONG position in the currency pair. It is advised to put a stop loss order below 140.40. This would help to book profits around 145.

To gain from the expected rally in the GBP/JPY currency pair, we recommend investing in a high or above contract offered by your preferred broker. The deal should have an expiry period of 1 week, and before entering the trade, one needs to make sure that the currency pair is trading around 141.60 in the OTC market.

Rich Archer

Rich Archer

Hi, my name is Rich Archer. I am living in London. Welcome to Binary Manual. Reach to Binary Options broker reviews and market news here.

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