Sell, sell, sell! Pound traders were all about selling yesterday as they had little reason to hold on to the currency with only light economic data on tap. As a result, Cable ended the day 30 pips lower at 1.6348 after a failed attempt to close above the 1.6400 handle.
Yesterday’s selloff was an interesting market move, seeing as it happened ahead of the release of the U.K.’s CPI report later at 8:30 am GMT. Yesterday’s price action was in contrast to the pound’s behavior in the past, which saw pound gains prior to the release of the report. Could this pound weakness be a reflection of the market’s expectations?
Forecasts have CPI clocking in at 4.4%, the same rate as that of February. However, given the pound’s recent strength, there’s a chance the actual results may come in below expectations. Weak consumer demand, as evidenced by the 3.5% drop in the March BRC retail sales monitor (versus the February’s 0.4% decline), is also expected to weigh down on inflation.
If that’s the case, and CPI does print below forecast, expect traders to sell the pound like it was going out of style! But on the other hand, if CPI picks up, it may just breathe life into the pound and send it back up the charts.