Sterling Rises After A Surprise CPI Jump

The Japanese Yen continued to decline against the US dollar after the interest rates decision by the bank of Japan. As expected, the bank left rates unchanged at minus 0.1 per cent. The monetary policy statement said that the bank will leave rates at these levels for an ‘extended period of time’. Some analysts expected the bank to signal a near-future rate hike after last month’s forward guidance. Last month, the bank said that it will be flexible in allowing the longer-term Japan Government Bonds (JGBs) pass above or below the 0.2%. Meanwhile, data from the government showed that exports rose in August at a faster rate than traders had expected. They rose by 6.6%, which was higher than the projected 5.6%. This was a surprise because of the ongoing global trade war. Imports too rose by 15.4%, which was higher than the expected 14.9%. The decline in the Yen was also attributed to the announcement that North Korea will destroy a key missile test site and welcome international inspection.

The sterling continued to gain against the US dollar after surprise consumer prices data. Data from the Office of National Statistics (ONS) showed that consumer prices in August rose by an annualized rate of 2.7%. This was higher than July’s CPI of 2.5% and the 2.4% traders were expecting. The rise in prices was mainly attributed to a lower sterling and the rise in energy prices. The core CPI that strips the volatile energy and food prices rose by 2.1%, which was higher than the expected 1.8%. While these numbers were a surprise, analysts interviewed by Financial Times played down their impact to the BOE. They argued that the inflation was mainly driven up by the volatile energy, food, and other cultural products. Nonetheless, the data led ton higher treasury yields. The gilts rose to 1.618%, which was the highest level since January while German bunds rose to 0.5%, the highest level since June while the US 10-year rose to 3.07%, which was the highest since May.

The Department of Commerce released housing numbers that beat analysts’ consensus. The housing starts for the month of August rose by 9.2%, which was the highest rate this year. It was higher than the expected 5.8% growth. Housing starts were 1.282 million, which was higher than the estimated 1.235 million. The number of building permits slumped by 5.7% in August to reach 1.229 million. This was worse than the expected 0.1% decline.

GBP/USD

On August 15, the GBP/USD pair reached a YTD low of 1.2660. It then started a major rally that continued today when it reached a high of 1.3214. This was the highest level since late July. The upward momentum for the pair is continuing as shown by the momentum indicator shown below. It is also shown by the Bollinger Bands. This means that the pair will continue moving up. It will likely find resistance at the 1.3270 or the 1.3300 level.

USD/JPY

The USD/JPY pair reached a floor at 109.77 on mid-August. It then started a rally and today, it reached a high of 112.45. This was the highest level since July last month. It is also higher than the important resistance level of 111.75. The price is in line with the 21 and 14-day EMA while the momentum indicator is approaching the neutral level of 100. The upward trend will likely continue until it tests the resistance level of 112.75.

EUR/USD

The EUR/USD pair continued the slow upward trend started almost two weeks ago when it reached a low of 1.1524. This low formed the handle of the cup and handle pattern that was formed two weeks ago. The pair is now trying to continue the upward trend. The current price of 1.1678 is along the middle Bollinger Band. The upward momentum will likely continue as traders wait for the Fed decision next week.