UK CPI in focus

18 October, 2016

Sterling/Dollar staged an incredible rebound during early trading on Tuesday with prices lurching towards 1.2270 and this has nothing to do with an improved sentiment towards the Pound but Dollar weakness. With the Sterling repeatedly crashing to new lows amid the hard Brexit fears, the technical bounce displayed should be of no surprise and may even offer an opportunity for bears to install another round of selling. The persistent media reports of disagreements between the Chancellor and his cabinet over the Brexit scenario has sparked discussions of political risk while uncertainty over the health of the UK economy after the article 50 is triggered continues to weigh on sentiment.

Investors may direct their attention towards the inflation report for September which is expected to rise to a near two year high as a weaker pound post-Brexit bolsters import costs. In normal circumstances a healthy rise in inflation would be warmly welcomed with sentiment towards the UK economy receiving a welcome boost. It must be kept in mind that the Brexit fueled Sterling crash has not made these normal circumstances with fears already mounting over inflation reaching 2.6% in 2017. The GBPUSD could still be exposed to further punishment moving forward as the terrible cocktail of hard Brexit jitters, uncertainty, and rising Fed rate hike expectations entice sellers to attack.

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