GBP/USD: Pound Higher Despite Weak CPI

 | Dec 16, 2014 12:44PM ET

GBP/USD has posted strong gains on Tuesday, as the pair trades in the low-1.57 range in the North American session. The pound has recovered Monday’s losses. On the release front, CPI continues to lose ground and dipped to 1.0%. The BOE released its Financial Stability Report, with the central bank voicing its concern about lower oil prices. Over in the US, it was a disappointing day, as Housing Starts and Building Permits missed their estimates and the Manufacturing PMI softened in December.

Inflation was on the mind of the markets and the BOE on Thursday, as the UK released CPI as well as a host of other inflation indicators. CPI continues to lose ground, falling to 1.0%, its lowest level since 2002. Still, the key indicator was within expectations, as the estimate stood at 1.2%. The BOE released its Financial Stability Report, noting that although the sharp fall in oil prices should boost domestic growth, it could result in inflation projections missing their target. Lower inflation levels give the BOE some breathing room regarding a rate hike in 2015, which only a few months ago seemed like a sure bet.

In the US, Tuesday’s data was a disappointment. Building Permits dropped to 1.04 million, short of the estimate of 1.06 million. Housing Starts rose slightly to 1.04 million, shy of the estimate of 1.06 million. The Manufacturing PMI dipped to 53.7 points, well off the forecast of 56.1 points. This was the indicator’s worst showing since January.