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Sterling Gyrates Following Diverging Data

David Becker
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The GBPUSD surged higher following a strong than expected consumer price index after dropping earlier in the session following a weaker than expected retail sales report. The conflicting data shows that the UK economy is still not on firm footing and that the BOE has many issues to wrestle with before raising rates.

U.K. June inflation data came in stronger than expected, with the headline CPI jumping to 1.9% year over year after the unexpected did in May to 1.5%. The median forecast had been for 1.6% rise.

Core CPI also rose by 0.4 of a percentage point, to 2.0% year over year. Rises in clothing, food and air transport prices drove the rise, while there were no offsetting downward effects.

Producer price figures were mixed, still painting a benign picture, with input prices down 4.4% year over year while output prices rose 0.2% year over year compared to expectations of 0.5%. Core output prices remained at +1.0% year over year, the same as in May. Although above expectations, the data broadly fits the BoE’s projection made in the last Inflation Report in May.

Earlier in the session sterling drop on the back of weak BRC retail sales data. BRC sales figures were poor, declining 0.8% year-over-year in June. The market had expected a 0.7% increase after a 0.5% rise in May. This is one of the weakest readings in a couple of years.

After generating a lower low, sterling rebounded testing resistance near the 10-day moving average at 1.7135. Momentum remains negative with the MACD (moving average convergence divergence index) printing in negative territory with a downward sloping trajectory. The MACD generated a sell signal late last week. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread.

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