CPI vs price on GPBUSD

Hi there,

Today, 12 Aug 08, at 10 30 GMT Consumer Price Index was released. Having in view that the 4.4% value was grater the expected (around only 4%), I was convinced that the pound will shoot up despite de bearish trend. The reason I thought so is because "consumer prices account for a majority of overall inflation. Inflation is important to currency valuation because rising prices lead the central bank to raise interest rates ". So, high CPI = High inflation = high intrest rate...

What I don`t understand is WHY the next second after de news, I have a big 80 pip bearish candle on my screen... WHAT HAPPENED ?

Necre

I'll have a crack at this, but don't take it as gospel because I am not a Dr in Economics...Also sometimes, fundamental issues like this are not cut and dried and you only find out the real reason of some currency moves well after the fact..

Anyway, my belief is that you did not see a rally on the GBP/USD because the U.K economy is slowing and slowing rather fast. They need to cut interest rates to stimulate the economy. Unfortunately they can't cut rates because they have high inflation. High inflation + stagnant growth = stagflation.

This high inflation number just confirms this scenario...

Hope this helps

Thank you Norman.

I think your scenario is preaty good... Still, an 80 pip moove in the oposite way of the fundamentals, right after the news, is a very strong reaction to something... Now it seem`s that the price went back to 1.9025...

Anyway, I will continue to follow the news in order to complete my technical strat. Is there another (more active) thread on this forum on which I can discuss such issues with you and other traders?

With esteem,

Necre

There is a couple of very active "cable" threads, but I believe most of it is more of a social chit chat than anything...