Pound to Remain Bullish after Strong Inflation Expectation

British PoundThe UK Office for National Statistics submitted a report earlier this month where the exceptional manufacturing PMI reading was found to be 56.9. It has propelled the Pound currency against Greenback and with other currencies of G10.

The nuclear test conducted by the North Korean regime has made the US dollar to become weaker. The currency pair GBP/USD which is trading at 1.3180 levels at the moment is likely to rally further, and the reasons for the same are discussed below.

The ONS (UK Office for National Statistics) on Tuesday declared that CPI or Consumer Price Inflation has increased at the annual rate of 2.9% in August which registered an increase of 2.6% as compared to its previous month.

The increase in rate was higher than 2.8% as speculated by the analysts. The increase in the inflation rate was because of a steep rise in motor fuel and clothing prices. Excluding energy, tobacco, food and other volatile items, the core CPI increased 2.7% year on year in August as compared to 2.5% speculated by the analysts. The core CPI increased by 2.4% in July.

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Economists at MUFG and Berenberg are of the opinion that hike in rate is possible during the coming months. The argument is based on the sharp rise in inflation closer to 3 percent which will not be tolerated by Bank of England. The banking institution has recently commented that interest rates must go up soon in spite of the moderate economic growth to curb the inflation.

On the other hand, the US Dollar is the worst performing currency of the month. It is not surprising to note that it is the worst performing currency of this year. A strategist at Deutsche Bank in London named George Saravelos said that the US Dollar would continue to remain bearish because of two reasons.

First of all, the market is not eager to price another rate hike in 2017. Even if the benchmark rate is hiked in December by Fed, still, the question arises amongst the traders is what would happen next? USA President Donald Trump is looking forward to replacing many of the members of the rate settling committee (FOMC) next year. As the President is in favour of a weak US Dollar that would enhance export, the market is of the opinion that Fed would aggressively resist hike in rate next year.

The second reason is that the analyst at Deutsche bank think that the currency market is no longer driven by interest rate expectations but an adjustment to flow imbalances that have risen from unconventional implemented in the aftermath of 2008 crisis. Hence, the US investors who have their overseas portfolio liquidated after the financial crisis expect to reallocate their funds to other markets. Thus, speculation of hawkish stance by Bank of England and a weak outlook for US Dollar is likely to keep the currency pair GBP/USD to remain uptrend for a short while.

On a technical level, the currency pair has formed a rounded bottom pattern which is clear from the image below. The stochastic oscillator is also in the bullish zone. Hence, an extension which is equal to the depth of the pattern from the neck would give the target level in round bottom pattern (AB=CD). We can then expect the current rally to take the currency pair to a level of 1.3600.

GBPUSD Pair Oct 20th 2017

GBPUSD Pair Oct 20th, 2017

To benefit from the uptrend, traders are advised to open a LONG position in the currency pair GBP/USD near 1.3180. Stop order should be placed below 1.3080 to minimise the risk. The LONG position would be sold near 1.3440.

A similar kind of trade can be established by putting money in a call option from any legitimate binary options broker. The preferred entry should be 1.3180 and the expiration period should be on 3rd September 2017.

Pound to Remain Bullish after Strong Inflation Expectation
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Pound to Remain Bullish after Strong Inflation Expectation
The Strong rise in inflation and expectations of a rate hike by the BoE strengthens the Pound, while the overall bearish sentiment keeps the Greenback weak.
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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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