Fundamental Analysis

Sterling Flat Ahead Of UK Inflation Data

Typography

Sterling struggled for direction on Tuesday morning, as investors remained on the sidelines ahead the release of January's CPI inflation figures from the United Kingdom.

Today's pending consumer price index (CPI) readings could be a big deal, especially when considering how the British Pound remains sensitive to monetary policy speculation. Headline inflation is expected to fall for the second consecutive month to 2.9% YoY in January, from 3% in December, while core inflation is seen rising to 2.6% from 2.5% in December. Any signs of inflationary pressures easing could cool expectations of the Bank of England raising UK interest rates sooner than expected, consequently exposing Sterling to downside losses. However, an upside surprise in UK inflation figures may reinforce speculation of higher UK interest rates, ultimately supporting the Pound. While monetary policy speculation is likely to continue impacting Sterling, investors must not overlook Brexit developments and the uncertainty they present.

From a technical standpoint, the GBPUSD remains under noticeable pressure on the daily charts. Bears managed to secure a weekly close below the 1.3850 level, and as such could pave a path to further downside. Previous support at 1.3850 may transform into a dynamic resistance that encourages a decline lower towards 1.3700. Alternatively, a daily close back above 1.3850 may invite an incline towards 1.4000.

Global stocks continue to rebound

Investors seem to have entered the new trading week with a renewed appetite for risk, as global stocks rebounded from their worst week in two years on Monday.

Most Asian shares closed higher on Tuesday following Wall Street's solid rebound overnight. In Europe, equities are expected to open on a positive note, with the bullish domino effect potentially supporting Wall Street this afternoon. With global equity markets still highly sensitive to fears of rising inflationary pressures and higher interest rates, equity bears could still make an unwelcome appearance.

Commodity spotlight – Gold

Gold popped higher during Monday's trading session with prices rising towards $1329, thanks to a softening US Dollar. While Dollar weakness could in the short term offer the yellow metal further support, gains are likely to be limited by rising expectations of higher US interest rates. Focusing purely on the technical picture, the yellow metal remains under pressure on the daily charts. A failure for prices to keep above the $1324.15 level could inspire a decline towards $1300. Alternatively, if bulls are able to hold their ground above $1324.15, prices could venture towards $1340.

South African Rand weakens

The South African Rand dipped slightly lower against the Dollar, with the USDZAR up 0.09% following news overnight that President Jacob Zuma has refused to step down. It is now appearing that the ANC Party will formally request for Zuma to step down from his position, but news that he is still refusing to do so has weakened the Rand very marginally in early trade.

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