GBP/USD is showing limited movement on Wednesday. In the North American session, the pair is trading at 1.2484, down 0.14% on the day.
Pound Shrugs as U.K. Inflation Dips
Recent CPI releases have been around the 2.0% level, which is the Bank of England’s inflation target. However, August CPI slipped to 1.7%, down sharply from 2.1% a month ago. This release will likely raise concerns at the BoE, as it is the lowest level since December 2016. Core CPI also missed expectations and fell from 1.9% to 1.5%.
Fed Decision Looms
It looks like the Fed will lower rates at the upcoming policy meeting, which would mark back-to back rate cuts. If the Fed does press the rate trigger, the dollar could respond with losses across the board, which would push cable higher. Traders should also keep an eye on the rate statement – a dovish message from Fed policymakers could further weigh on the U.S. dollar.
GBP/USD managed to break above resistance at 1.2420 on Tuesday, after the pair posted strong gains. The pound is currently within striking distance of resistance at 1.2510 – the pair tested this line on Tuesday, but was unable to consolidate above it. This line is weak, and we could see the pound test it during the North American session. On the downside, 1.2380 has strengthened in support, with the pound moving to higher ground.
USD/CAD continues to have a quiet week, as the pair remains rangebound. In Wednesday’s North American session, the pair is trading at 1.3271, up 0.22% on the day.
Canadian CPI Slips
Canada’s key inflation gauge, CPI, contracted by 0.1% in August. The reading of -0.1% marked a sharp drop from a 0.5% gain in July, but the markets had expected a decline of 0.2%. Weaker inflation means a decrease in economic activity, which could weigh on the Canadian currency.
Fed Poised to Lower Rates
The Federal Reserve has strongly hinted that further rate cuts are coming in the fourth quarter, and the Fed is widely expected to cut the benchmark rate at its monthly policy meeting later in the day. The CME Group is predicting a 70% chance of a 1/4 point rate cut. If the Fed does press the rate trigger, the Canadian dollar could take advantage as lower rates make the U.S. dollar less attractive to investors.
USD/CAD has remained rangebound this week. The line of 1.3282 remains relevant and is currently providing weak resistance. On Tuesday, the pair managed to test this line, although it failed to consolidate above it. USD/CAD could take another stab on Wednesday and test this line. On the downside, there is support at the round number of 1.3200.
The Mexican peso is flat in Wednesday trade. In the North American session, USD/MXN is trading at 19.35, down 0.01% on the day.
How Will Peso React to Fed Rate Cut?
All eyes are on the Federal Reserve, which will set the benchmark rate and release a rate statement later on Wednesday. The Fed is widely expected to lower rates for the second time in just over two months. A rate cut makes the U.S. dollar less attractive, but at the same time it could dampen risk appetite and weigh on risk currencies like the Mexican peso. As well, a dovish rate statement could sour the mood of investors and push the peso downwards.
The Mexican peso remains rangebound this week. The resistance line of 19.45 remains weak and was tested by USD/MXN on Tuesday. However, the pair appears to have little appetite to test this line on Wednesday. There is immediate support at 0.1920, which has held since August 1. On the upside, there is strong resistance at 19.70.
This article was originally posted on FX Empire
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