The GBPUSD pair fell by over 350 pips last week due to weak UK economic data which reduced the likelihood of a rate rise next month.
The consumer price index (CPI) came in below expectations at 2.5% (expected 2.7%). The CPI accounts for the majority of overall inflation and when this is rising it is more likely that the Central Bank of a country will raise interest rates.
When the data is below what was expected, a Central Bank is less likely to increase interest rates. In addition to the weak CPI data, wage growth, which is one of the key drivers behind inflation also came in below expectations at 2.8% (expected 3%).
Following these data releases, Mark Carney, (the Governor of the UK Central Bank) said in an interview with the BBC on Friday, that, although several interest rate rises were “likely” over the next few year, softer economic data were giving the Bank of England pause for thought.
Traders did not wait for what Carney had to say and were selling sterling heavily from the first poor data announcement on Tuesday (wage growth).
A strong USD late in the week also helped the trade as it pushed the GBPUSD pair down further. At $5 a pip some traders caught a nice profit of $1,750 on the move.
Understanding the drivers behind interest rate decisions and how both Central Banks and the markets will react to this information is key to helping you hit the big scores in trading.
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