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Sterling Holds Steady Ahead of Inflation and Employment Data

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Sterling Holds Steady Ahead of Inflation and Employment Data

UK data turned the corner in the third quarter and the pessimistic outlook of the Bank of England new chief Governor Carney which was offered when he took office in July is likely to be revised. The central bank’s growth forecast is likely to be revised higher and a faster decline in unemployment is likely to be anticipated. Even if the medium term inflation forecast is lowered, the market appears to be discounting the likelihood of a rate hike late next year.

The UK will report the latest inflation and employment data prior to the Bank of England’s Quarterly Inflation Report this week. While deflationary pressures are evident among most of the high income countries, the UK is an exception. The core inflation rate is likely to ease at 2%, which is the consensus forecast and would match its lowest reading in four years. The claimant count, which is similar to the US’s jobless claims report, is expected to fall again and this is consistent with a further decline in the unemployment rate to 7.6%.

Despite a stronger than expected non-farm payroll report released in the US on Friday, the GBPUSD currency pair has been able to hold its ground. Support on the currency pair is seen near a horizontal trend line at 1.5894. A break of this could see a quick test of support near former resistance at 1.57. Short term resistance on the currency pair is seen near the 10-day moving average at 1.6020.

Momentum on the currency pair is negative although the MACD (moving average convergence divergence) index trajectory is flat reflecting consolidation. The RSI (relative strength index) which is an oscillator that measures overbought and oversold levels is printing near 46, which is in the middle of the neutral range.

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