GBPUSD: inflation in the UK will force the Bank of England to raise rates
The European currency has made another unsuccessful attempt today to break above the highs of this month, which again led only to a sharp fall in the area of yesterday’s lows.
Such sharp fluctuations are taking place against the backdrop of the tightening of the trade war between the US and China, which makes investors even more nervous.
Let me remind you that today it became known that China is introducing new duties on imports of goods from the United States in the amount of $60 billion in response to tariffs from the United States. China’s new duties apply to 5,200 U.S. goods, including agricultural products, machinery and equipment, and chemical products.
Inflation in the UK
Meanwhile, the British pound still managed to break through to the monthly highs after the release of more than a positive report on inflation in the UK, which could lead to further tightening of monetary policy by the Bank of England, which does not want to do so in a period of uncertainty that is associated with Brexit.
The Bank of England has repeatedly said that inflation should return to its target level, while the main cause of risks remains the agreement on Brexit, which has not been achieved, despite all the rumors that have fueled the market in the last few weeks.
According to the report, the annual inflation rate in the UK accelerated in August. It happened because of the sharp increase in prices for clothing and air tickets.
According to the National Bureau of Statistics, in August this year, compared to the same period of 2017, consumer prices rose by 2.7%, while in July the annual inflation rate was 2.5%.
Economists had forecast inflation to decline to 2.4 percent.
The strengthening of inflationary pressure in the British economy is regarded by experts in two ways. The British central bank has repeatedly said that it can raise the cost of borrowing twice or more times in the next two or three years to return the annual inflation rate to the target level of 2%..
As for the monthly growth, in August this year, compared to July, the consumer price index rose by 0.7%, while economists had expected an increase of 0.5%. It is important to note that in July inflation did not show any increase compared to June.
The technical picture of the GBPUSD
As for the technical picture, the buyers of the British pound have long lacked a major downward correction, which is now being formed in the market. The breakthrough in the support of 1.3110, in which the pound’s sellers have rested on, will lead to the demolition of a number of stop orders, and a more significant movement of the trading instrument down to the lows of 1.3050 and 1.2990.
The Bank of Japan left monetary policy unchanged
Today it became known that the Bank of Japan left monetary policy unchanged. Rate on deposits remained at a negative level of -0.1% and the target rate of return of 10-year bonds – near 0%.
The regulator said that it intends to maintain a very low level of interest rates for a long time and is still ready to buy government bonds at an annual rate of 80 trillion yen.
During the speech of the governor of the Bank of Japan, the yen also traded without changes in the pair with the US dollar. Kuroda said he expects Japan’s economy to continue a moderate recovery and prices will gradually move towards the 2% inflation target. The central bank governor also noted that he would maintain extremely low rates for a long period of time.
Data on the growth of Japan’s foreign trade deficit, which doubled in August this year compared to the previous month, were also ignored by the market.
According to the report, Japan’s foreign trade deficit for the reporting period amounted to 444.6 billion Japanese yen with a forecast of 447.7 billion yen, while the surplus of foreign trade with the United States decreased by 14.5%. The increase in the deficit was due to an increase in imports of oil and liquefied gas from the United States. Japan’s annual export growth in August was 6.6%, while economists had expected growth of 5.3%.