ECN Capital Analyst Predicts Further Weakening of the Greenback

At first glance, the GBP/USD currency pair, the cable, appears headed for a recovery. It is currently trading at 1.31, down 0.15% for the week starting Monday 17 July, 2017. The GBP has broken a short-term downtrend, and reversed course to post strong gains above the 50-day moving average of 1.288. The 200-day moving average of 1.255 remains a theoretical support level for the pair. The recent rise in the value of the sterling has come as a surprise to currency traders, and this is the highest level for the sterling in almost 10 months. The decline in the value of the USD has helped to give this pair the momentum it needs to break the critical 1.30 level.

Weaker Performance of the USD

On Friday, 14 July 2017, a smattering of US economic data was released to the market. US inflation plunged to an 8-month low, as reports indicate that consumer prices in June increased by 1.6% year on year. Analysts were forecasting a higher rate of 1.7%. In May 2017, year on year consumer prices increased 1.9%. This marks the lowest inflation rate increase in the US since October 2016. It was fueled in large part by declining oil prices. Consumer prices flatlined, after dropping 0.1% during May.

ECN Capital trading analyst, Montgomery Smyth believes that further market tumult should be expected, ‘Based on the data we are seeing since February 2017, the US inflation rate has consistently dropped month after month. The figures read 2.7% Y-o-Y, 2.4% Y-o-Y, 2.2% Y-o-Y, 1.9% Y-o-Y and now 1.6% Y-o-Y. These year on year monthly declines from February through June are disturbing… Markets are not reacting favourably to plunging interest rates when the Fed is targeting an overall inflation rate of 2%. We can expect the Fed to take a go-slow approach to monetary tightening, and this has thrown the cat among the pigeons.’

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