Pound drops despite rise in UK CPI

PrintThe British pound posted its first drop in three versus the U.S. dollar on Tuesday despite a report showing U.K. came out of negative territories.

U.K. consumer price index (CPI) rose 0.1 percent in May, coming in line with analysts’ forecasts, after dropping 0.1 percent in April.

The sterling faced downside pressure last month after April’s CPI reading showed inflation fell into negative territories for the first time since 1960.

Other inflation gauges, PPI and RPI released today, came lower than forecasts to raise concerns inflation will need long time to go back to the BOE’s target of 2 percent.

Inflation may fall below the current 0 percent in the coming months, where it will not pick up again to the bank’s target of 2 percent before 2017, BOE quarterly inflation report released last month said.

Brent crude gained 21 percent in April, yet it retreated in May after it set a high of $70.31 a barrel.

The pound rose sharply against the dollar last week, taking advantage of the fall in the greenback on reports signaling the U.S. administration was worried about the strength of the dollar.

The GBPUSD is meanwhile trading around 1.5559, slightly below the session’s pivot point located at 1.5565.

For the rest of the day, the pair may hover between key support at 1.5520 and key resistance at 1.5645.

Despite the fall in the pair, the RSI 14 momentum indicator is still above the 50 line while the Daily SMA 7 lifts the upside direction from below.

Pound drops despite rise in UK CPI fxcomment

Ahmed Mamdouh

Ahmed Mamdouh, Co-Founder and Head of English Fundamental Analysis at FXComment.com, with 7 years of experience in the financial markets. Mamdouh holds a Master’s Degree in Economics from The American University in Cairo and a Bachelor Degree in Economics from The Faculty of Economics and Political Science, Cairo University.

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