The currency blog

Yesterday we saw a period of consolidation after the markets dipped from Friday. GBP/USD recovered from the 1.62 levels to move back to 1.64 and GBP/JPY gained from 154 to 156 as fears subsided and confidence crept back in. As we have seen on many occasions we are swinging like a pendulum between risk aversion and risk appetite and yesterdays small bounce in equities helped the USD to weaken against sterling.
Data out this morning from the UK demonstrated that July CPI came in at +1.8% month on month, stronger than median forecasts of a fall of -0.3%. This was a surprise and a boost for the pound as the market was looking at more deflationary pressure especially following the Bank of England’s quarterly inflation report which noted that inflation is set to fall below 1% by the autumn. The chief reason for the upward trend of CPI was attributed to the recreation and culture sector, specifically the prices of computer games, DVDs and CDs.

In other data out we saw the ZEW survey on economic sentiment for August in Germany come in at 56.1 versus 39.5 in July, this was stronger than forecast and is reflective of the positive growth in Q2 GDP. You may have expected this to rally the euro but no gains as it remains mute at 1.4120 against the USD and GBP/EUR is up a touch to 1.1630.

Economic data and risk appetite/aversion in equities has been the recent drivers for the forex markets. However be aware that on a technical basis GBP/USD and EUR/USD are now looking in a bearish trend and could forge a move to 1.5980 on GBP/USD and 1.3850 on EUR/USD. If the markets fail to be led by sentiment and equities then we could see a move lower on the technicals…Sterling may be nervous also ahead of UK retail sales data on Thursday.

Discuss on this on the Currency Exchange Forum