Confused by the inflation news - effect on Forex?

hanneswas said:
The new inflation news from BoE on the GBP stated that the inflation will be higher.
I would have expected the GBP to go down. Instead, GBP/USD runs up.
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Is this only because USD is going down?

Would really appreciate any reasonable explanations on the current movements.

Thank you very much!
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Focus on central bank intentions, price pressures, especially PPI force them to change communication and hint about early rate hikes
 
kroxobor said:
Focus on central bank intentions, price pressures, especially PPI force them to change communication and hint about early rate hikes
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Thank you!
What would be the current pressure situation in your opinion?
US now is after tapering without to plan raising the rates. GBP promised to go up to 1.2% this year.
Russia to 8% and others also started to play the game. EU is still officially not planning to rise the rates.

GBP had a lower PPI report on 20th. So this is where the situation is getting interesting.
  • Given the "bad" PPI from GBP, - (would expect GBPUSD to go down)
  • high rates promise - (would expect GBPUSD to go up - and it went back up after the PPI report)
  • and tapering (reversal of QE) announcement from the US, - (would expect GBPUSD to go up url)
I am getting lost.

Is there a "clean" way to see the trend? Like GBPUSD will go up since 2 arguments vs 1 or the weight of US tapering plans?
 
As a baseline scenario order backlogs, supply bottlenecks will likely linger for some time maybe quarter or two so one rate hike from BoE should be priced. This in turn means further GBP upside is likely tied to BoE outlook on further tightening. If it signals that no further hikes are in cards then focus should turn on Fed stance.
 
@maxinger Traders are often seen as giving too much importance to the indicators. They give credit of their win to indicators and also blame it for their failure, as if indicators are not tools but trading itself. Indicators are designed to give insights and predict what a market will do.
 
Among all other economic factors, I think inflation is the most confusing. You never know if the government will increase the interest rates or decrease it in response to inflation.

The inter-relationship between inflation and interest rates is often complex. If banks lower the interest rates, it can increase economic growth by spurring consumer spending but lower interest rates do not attract foreign investment.
 
After observing GBP and NZD for the last months and the expectations they spread about rising rates, my opinion is now that after such a rumor on rising rates is in public. the prices rather hold or rise. However, the market goes down quickly since the central banks do not want to raise the rates at the same pace as the market participans would like to "price in".
So, lets see whare is the bottom of GBP.
I think NZD will keep going up now since the latest correct was because the bank disappointed the market in rising the rate even higher. (it was raised a month ago already)
 
hanneswas said:
I am not really trading the news. I have a short position on Gbpusd and would like it to go down. :)
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At some point you might find you have to draw a line and get out of a position. When this was posted I would have been a short-side trader on GBP/USD also but I will not open or hold short positions if price has risen through a swing high and/or closed above the 50EMA. So I could well have gone short on this pair when you did but would have been out by the time you started this thread.

Even if I understood economics and inflation I don't have enough capital to trade contrary to what the big money is doing.
 
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