Stocks gain as GBP slips on inflation

The pound depreciated as the UK inflation fell by 0.1% on month to July versus 0.0% expected by analysts. Apparently, the soft pound didn’t cause a positive readjustment in British consumer prices. The headline inflation remained unchanged at 2.6% year-on-year.

The second month of softening in the UK’s inflationary pressures confirmed the Bank of England (BoE) Governor Mark Carney’s expectation that lower wages would translate into softer price inflation.

The knee-jerk pound sell-off pushed the daily MACD (Moving Average Convergence Divergence (26,13,9,0) on LCG Trader) into the negative territory, suggesting an increased possibility for a deeper bearish momentum as the GBPUSD broke the 1.2927/1.2925 support (50% retrace on June – August rise / 100-dma). Losses could extend toward 1.2847 (major 61.8% retrace).

With the easing inflationary pressures, the BoE doves are set to remain on top of the game. The BoE is decided to maintain its dovish tone regarding the foreseeable future of its monetary policy under the Brexit circumstances and the downturn in inflationary pressures would allow the BoE to keep its policy loose for an extended period of time. Moving forward, Cable could encounter a reinforced resistance at the $1.30.

The FTSE 100 stocks opened on a positive note on Tuesday. Mining and energy stocks remain resilient as oil consolidates losses after having tanked by more than 5% in less than a week. Weaker pound could encourage a further rise toward the 7400p level along with the globally improved risk appetite.