Pound signals downtrend on soft inflation data

British MoneyAfter the statement of Kristin Forbes regarding the raising the interest rates by Bank of England shortly, the Pounds turned bullish against Aussie in the previous week. Kristin Forbes is an external member of the United Kingdom monetary policy committee. She further said that the hike in the interest rates is primarily because of the economic downturn which is caused by a shortage inflow of money.

However, there was no immediate effect on the credit scenario because of the outcome of Brexit referendum. According to this theory, Forbes is of the opinion that the economists have made an error regarding judgment and downturn by Brexit might not come at all. So, if we consider the pace at which the inflation is rising, Bank of England is not doing anything terrible by increasing the interest rates.

After the statement made by Forbes, the currency pair GBP/AUD reached a high figure of 1.6480. However, in the past few trading sessions, there has been some amount of loss of the cross gains. We can easily interpret that the currency pair will experience a further decline shortly and the reasons for the same is mentioned below.

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The UK Inflation Data that was released on Tuesday supported the arguments made by Kristin Forbes. There is an increase in consumer price by 1.8% on year to year basis in January as compared to a rise of 1.6% in December last year. The figure was released by the Office for National Statistics. However, the figure is lower than the estimates of the analysts who predicted it to be an increase of 1.9%. The main reason as to why the analysts missed their estimated figure is because of the discounts offered by the clothing stores.

China, on the contrary, witnessed an increase in consumer prices by 2.5% on year to year basis in January. The analysts in markets anticipated the consumer prices to increase by 2.4%. There is a 2.1% increase in the CPI reading on a year to year basis in the previous month. When it comes to trade, China appears to be a most important partner of Australia. So it is quite likely that with an increase in consumer prices in China, it will strengthen the Aussies as well.

Iron Ore registered a figure of $92.23 per tonne on Monday, and it indeed contradicted the estimates made by the analysts. Iron Ore is one of the significant export revenue earners in Australia. The figure is the highest since August 2014. Several times throughout this year, the commodity has defied the call of the peak in price by the analysts. According to the Government of Australia, they have predicted that the iron price will stay at approximately $55 per tonne for the year 2016-17. The high cost of iron ore will undoubtedly bring additional revenue worth several billion in the form of taxes for the Australian government. If we consider the details as mentioned above, we can quickly expect that the currency pair GBP/AUD will trade with a negative bias for a short term.

GBP/AUD Pair: February 16th 2017

GBP/AUD Pair: February 16th, 2017

There is a resistance of 1.6420 from sellers for the currency pair GBP/AUD. MACD indicator’s negative reading readily confirms that the Pound has weakened. As a trader, you can expect that the current downtrend will continue in the future as well.

If you want to incur profit from this downward trend, you can go short in the currency pair GBP/AUD near 1.6160 by putting a stop order above 1.6300. You can book a profit near 1.5950 via any reputed Binary broker’s trading platform.

Top10FX.net Editor

Top10FX.net Editor

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