Sterling Drops to against the Dollar as Inflation Slows

Tradervox.com (Dublin) - GBP/USD has dropped to break down tentatively below key support at 1.5900, a level that has been tested and respected at least twice within the past month. From mid-September, the currency pair was entrenched in a well-defined trading range, establishing strong resistance around 1.6260 with a double-top pattern, and strong support around 1.5900 with a double-bottom pattern. Now that the pair has furthered its losses by tentatively breaking down below the 1.5900 support level, the double-top reversal pattern that potentially reverses the steep July-October bullish trend has theoretically been validated. With the current breakdown in place, the clearest immediate support target to the downside resides around the key 1.5750 level, followed by 1.5600. In the event of a short-term upside pullback above 1.5900, strong resistance should be found around the 1.6000 psychological level.

The pound fell to its lowest level versus the dollar in almost two months after a report showed U.K. inflation slowed more in October than economists forecast, damping bets on higher interest rates. The currency dropped 0.8 percent to $1.5869 at 10:39 a.m. London time after falling to $1.5855, the lowest since Sept. 13. Sterling slid 0.6 percent to 84.36 pence per euro after appreciating to 83.01 pence on Nov. 7, the strongest level since Jan. 17.

Consumer prices increased 2.2 percent in October from a year earlier after rising 2.7 percent in the 12 months through September. That’s less than the 2.5 percent rate predicted by the median forecast of 34 economists in a News survey. Short sterling futures rose, pushing the implied yield on the contract expiring in December 2014 down four basis points, or 0.04 percentage point, to 0.78 percent.

The Bank of England’s Monetary Policy Committee left its asset-purchase target at 375 billion pounds on Nov. 7, as predicted by all 46 analysts in another news survey. Officials also kept the benchmark interest rate at 0.5 percent. The central bank has said it will keep borrowing costs at a record low until unemployment, currently at 7.7 percent, falls below 7 percent.

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