The pound declined against the greenback yesterday despite the release of better-than-anticipated consumer price index (CPI) data by the Office for National Statistics (ONS). The unexpectedly positive manufacturing output data from the US, reflecting the ninth month of growth in a row, enabled the greenback to gain ground against the pound. In the last 24 hours, the GBP/USD pair declined from a high of 1.3915 to a low of 1.3860.
According to the ONS data, the UK consumer price index increased 0.7% y-o-y in January, following a rise of 0.6% in the earlier month and a notch above the 0.6% increase anticipated by economists.
Excluding volatile goods such as food and fuel, the core consumer price index increased 1.4% y-o-y in January, following a similar rise in December. Economists had anticipated the core consumer price index to increase 1.3% for the reported period.
The Consumer Prices Index, including owner occupiers’ housing costs (CPIH), increased 0.9% in the 12 months ended January 2021, an increase from 0.8% in December 2020. Recreation and culture made the most significant contribution of 0.35% to the CPIH (12-month inflation rate).
On an m-o-m basis, the consumer price index declined 0.2% in January 2021. In the previous month, the CPI increased 0.3%. Similarly, the CPIH decreased 0.1% m-o-m in January. While clothing and footwear contributed negative 0.13 points to the CPIH, furniture and household goods contributed 0.08 points. Likewise, restaurants and hotels contributed 0.07 points to the CPIH.
In the US, according to the Census Bureau, retail sales grew 5.3%m-o-m in January, following a decline of 0.7% in the previous month and blew away the 1.1% rise anticipated by economists.
Excluding food and energy, core retail sales increased 5.9% m-o-m in January, following a drop of 1.4% in the prior month and surpassed the 1.1% increase expected by economists.
The primary reason for the sharp rise in consumer spending is the $900 billion stimulus package approved last month, in addition to the $2.20 trillion packages cleared in the previous year. With $600 being paid as assistance, consumers went on a shopping spree. However, the economy continues to face trouble in taking off due to the unabated rise in COVID-19 infections.
Many economists believe that the US economy will have a slow start this year but will gather as the COVID-19 vaccination initiatives gain traction.
According to the Bureau of Labor Statistics, the producer price index increased 1.3% m-o-m in January, following a rise of 0.3% in December and more significant than the 0.4% growth anticipated by economists.
Excluding volatile goods, the core producer price index increased 1.2% m-o-m in January, following a mere 0.1% increase in the earlier month. The market hand anticipated a 0.2% increase in the core PPI.
The PPI for final demand rose by 1.3% in January, reflecting the most significant increase since the index came into existence in December 2009. Prices for final demand, excluding foods, energy, and trade services, grew 1.2% in January. It is the sharpest increase since the index was started in September 2013. Prices for final demand services increased 1.3% in January, reflecting the most significant rise since December 2009 when the index came into existence.
More than 70% of the increase in January was led by a 1.4% rise in prices for final demand services, devoid of trade, warehousing, and transportation. The indexes for final demand transportation and warehousing services and trade services also recorded 1.3% and 1% gains, respectively.
According to the US Federal Reserve, the industrial sector’s capacity utilization rate increased to 75.6% in January, from 74.5% in the earlier month, and surpassed the 74.9% rate anticipated by economists.
The Federal Reserve also stated that industrial production increased 0.9% m-o-m in January, following an increase of 1.3% (downwardly revised from 1.6%) in December. The consensus estimate called for a 0.4% rise in industrial production.
Notably, manufacturing output increased 1% m-o-m in January, following a growth of 0.9% in the earlier month. The output of motor vehicles declined 0.7% in January, following a 0.2% drop in the previous month. The decrease was mainly due to the worldwide shortage of semiconductors, the Fed points out. Mining production, which includes oil and gas, surged 2.3% in January, following a 0.7% rise in the earlier month. Utility output decreased 1.2% m-o-m in January, following a decline of 4.9% in December.
Business inventories increased 0.6% m-o-m in December, following an increase of 0.5% in the earlier month and missed the 0.5% rise anticipated by economists. In value terms, business inventories stood at $1.971 trillion in December.
On a y-o-y basis, business inventories declined 2.6% in December 2020. The aggregate business inventories/sales ratio was 1.32 at the end of December. In December 2019, the ratio stood at 1.39.
The positive data from both the US and the UK is expected to keep the GBP/USD pair range-bound with a slight bearish bias.
The GBP/USD price chart indicates that the currency pair descends after failing to cross above the resistance level of 1.3915. The following support is anticipated only near 1.3800. The MACD indicator also has a negative reading. Therefore, we are expecting the currency pair to remain in a downtrend in the short-term.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
