Technical Bias: Neutral
- GBPUSD plunges nearly 200 pips to mid-1.54 region.
- UK CPI turns negative for the first time on record.
- Tame inflation supports prolonged stimulus by the BOE.
The GBPUSD plunged on Tuesday, declining around 200 pips as the post-election rally continued to fade amid disappointing UK CPI.
The GBPUSD declined for a third consecutive day, falling 1.3 percent to 1.5458. The GBPUSD advanced to yearly highs last Thursday (1.5810) after posting its biggest two-week rally in six years, according to Thomson Reuters.
According to the 1-hour chart, the pair has plunged into oversold territory as it struggles to reclaim 1.55.
The outlook remains generally positive on the daily chart, suggesting room for upward momentum.
The pound has been well supported since the Conservative Party headed by Prime Minister David Cameron secured an unexpected majority in British parliament. It was the first Conservative majority in 23 years.
UK inflation turned negative in April, confirming the Bank of England’s forecast and supporting expectations for prolonged stimulus.
The consumer price index declined 0.1 percent annually in April, the first decline on record, the Office for National Statistics reported on Tuesday. Economists forecast CPI to be flat in April.
So-called core CPI, which strips away volatile goods such as food and energy, rose 0.8 percent annually, down from 1 percent in March.
Inflation is expected to remain very low in the coming months, according to BOE Governor Mark Carney. However, Carney is confident that “over the course of the year, as we get towards the end, inflation should start to pick up towards our 2 percent target.”
Tame inflation is expected to keep the BOE on the sidelines for a while longer. According to analysts, the Bank of England is prepared to keep interest rates at a record low of 0.5 percent until early 2016.
US Housing Starts Surge
US housing starts surged to their highest level in more than seven years in April, climbing 20.2 percent to a seasonally adjusted annual pace of 1.135 million.
Building permits, a bellweather for future construction, climbed 10.1 percent to 1.143 million, official data showed.
The figures raised optimism about the economy amid a myriad of disappointing data showing a protracted slowdown in economic output. The US economy expanded just 0.2 percent annually in the first quarter, initial estimates revealed last month. Economists believe the economy may have contracted up to 1 percent in the first quarter. The Commerce Department will post revised GDP figures later this month.