Forex Analysis: Sterling Jumps as April CPI Inflation Beats Expectations
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Sterling Forex Spread Betting Update
17 May 2011
The recent higher than expected jump in CPI inflation in April to 4.5% increases the pressure on the monetary policy committee at the Bank of England to act sooner rather than later with respect to a rise in interest rates.
Given recent comments from bank governor Mervyn King about high indebtedness, that particular outcome looks likely to be resisted, though it is likely to be fiercely debated.
The main increase in prices came from alcohol and tobacco which rose at their highest levels since records began in 1997, while core CPI jumped to 3.7%, also a record.
Higher travel costs also had a significant upward impact, not altogether surprisingly given that crude oil prices hit record highs of £77 a barrel early in April. However, it is quite likely, given that oil prices have since moved lower by about £9 a barrel, that May CPI figures could well show a fall back in prices.
Sterling, not unexpectedly, jumped sharply higher this morning as the forex spread betting markets speculated on the timing of the next upward move on interest rates.
Comments from new MPC incumbent Ben Broadbent have added to speculation on how he may well vote at his first meeting after the departure of rate hawk Andrew Sentance.
The soon to be released MPC minutes aren’t likely to shed much light on the inflation discussion given Sentance’s departure, but it will be interesting to note if Martin Weale has altered his position on higher rates given his concerns about growth.
The Sterling - Dollar spread betting market has resistance at the 55 day MA at $1.6290, which could give way to a break higher; however the forex pair could still run into resistance slightly higher.
This in itself would be unlikely to break the recent downtrend, which has been in place since the $1.6730/50 highs in late April.
It would probably take a move above the down channel resistance at $1.6400 to do that.
Against the Euro, the Pound continues to trade between support around the £0.8680 level and resistance at the 55 day MA at £0.8770.
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'Forex Analysis: Sterling Jumps as April CPI Inflation Beats Expectations' edited by DB, updated 17-May-11
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