Sterling rises as rising UK inflation puts pressure on the BOE

The British pound rose on Wednesday after the relatively strong UK consumer price index (CPI) data. According to the Office of National Statistics (ONS), the country’s consumer inflation rose from 1.5% in April to 2.1% in May on a year-on-year basis. Similarly, the core CPI that excludes the volatile food and energy products, rose from 1.3% to 2.0%. This increase was mostly because of higher clothing and gasoline prices as the country continued to reopen. The data came a day after the ONS published a relatively strong unemployment rate and a few days ahead of the Bank of England decision. 

The Australian dollar rose slightly after Australia and the UK inked a post-Brexit deal that will see the two countries remove tariffs and non-tariff barriers. The currency also reacted to news that Victoria will start easing the ongoing lockdown as the number of daily cases decline. Meanwhile, the Australian dollar reacted mildly to the relatively weak economic data from China. According to the National Bureau of Statistics (NBS), the country’s retail sales rose by 12.4% in May, missing analysts forecasts for the second straight month. The country’s industrial production and fixed asset investments also rose by 8.8% and 15.4% in May. This was lower than the expected 9% and 16.9%.

Global stocks were mixed today as investors waited for the Federal Reserve decision. In Europe, the DAX index declined by 0.20% while the FTSE 100 and CAC 40 index rose by less than 0.20%. In the United States, the Dow Jones, S&P 500, and Nasdaq 100 index declined by 0.10%. At the same time, the 10-year bond yield declined to 1.49% while the 30-year declined to 2.19%. With the Fed’s decision, analysts will be looking at the dot plot and the term “transitory.” The dot plot will provide a picture on when officials expect to start tightening.

AUD/USD

The AUDUSD pair rose to 7700 after the latest UK and Australia deal. On the hourly chart, the pair managed to rise above the short and medium-term moving averages while the Relative Strength Index has also been rising. It is also slightly above the important support at 0.7676, which was the lowest level on May 28. The pair will likely retreat before and after the FOMC decision.

EUR/USD

The EURUSD moved sideways ahead of the FOMC decision. On the four-hour chart, the pair is at the same level as the 23.6% Fibonacci retracement level. It is also slightly below the 25-day moving average while the awesome oscillator is approaching the neutral level. The pair is also between the descending pink trendline and is at the same level as the middle line of the Bollinger Bands. Therefore, like the AUDUSD pair, the EURUSD may resume the downward trend.

ETH/USD

The ETHUSD pair remained in a tight range ahead of the Fed decision. On the four-hour chart, the pair has formed a symmetrical triangle pattern. A closer look shows that this pattern looks like a bearish pennant. The pair is also oscillating at the 25-day moving average while the Average True Range (ATR) has started to drop. Therefore, the pair may break out lower ahead of the Fed decision.