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Strong UK Housing Inflation is offset by Weak Retail Sales

David Becker
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Strong UK Housing Inflation is offset by Weak Retail Sales

Tuesday’s release of inflation data in the UK, whipsawed the GBPUSD which rebounded the currency from support levels. The yield differential between the UK and US in the 2-year space rebounded sharply which should lead the GBPUSD back to resistance levels.

UK Consumer prices eased to 1.6% from 1.7% in March. This is the slowest pace since October 2009. It is the third consecutive month that the reading is below the BOE’s 2% medium term target. On the other hand it appears inflation is showing up in the housing space. The ONS reported Tuesday that annual house price inflation accelerated to 9.1% in February, nearly a 4-year high.

Although inflation is not showing up on the consumer level, the housing market is showing signs of overheating. In London, ONS found, house prices have increased almost 18%, the most in nearly 7 years. Separately, producer prices continue to fall. Input prices are off 6.5% from a year ago, the largest drop since 2009.

Short sterling, which reflected the level of interest rates in a futures contract ticked up and sterling itself recovered sharply after the housing price data. Prior to the report, it has tested the $1.6690 area, which corresponded to the 10-day moving average.

Retail sales in the U.K. fell 0.3% in March to mark their biggest monthly decline on a year-over-year comparison in 11 months. Though the timing of Easter this year was a factor in the retail slump for the month, a broad pricing war in the food sector was also a drag on the sales tally.

The GBPUSD tested lower levels ahead of the retail price data on housing. Resistance on the currency pair is seen near the recent highs at 1.6825. Momentum on the currency pair is positive as the MACD (moving average convergence divergence) index prints in positive territory with an upward sloping trajectory. The RSI (relative strength index) which is an oscillator that measures momentum along with overbought and oversold levels is printing near 57, moving lower reflecting a consolidation in price action.

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