As can be seen from the chart above, the British pound against the U.S. dollar, while exhibiting symptoms of manic behaviour with its monthly oscillations, is also trending down on a medium term basis. The 200 Day Exponential Moving Average (EMA) is providing a resolute resistance, and the chart shows clearly that the exchange rate is marking out a series of lower lows and lower highs, the classic definition of a falling trend.
The Euro took a hit against the dollar yesterday, too. After a slow decline in the London session, it sold off after the open in New York, and this move was further exacerbated in the Asian session last night.
The fall of the Euro can be expected, given the divergence between U.S. and Eurozone monetary policy. In the case of the pound, the tendency can only be explained by a realisation on the part of the markets that, having not so long ago been recognised as the currency most likely to win the race for the start of interest rate rises, it has now receded to the position of also-ran in the light of the firm expectation that it is the U.S. that will be the first major economy to do so.
U.S. inflation figures today
Inflation is a major determinant of interest rate rises. In the UK and the Eurozone, headline inflation is rattling along pretty close to zero, while core inflation, which excludes energy and food, is at about half the level the central bankers would like it to be.
The situation is somewhat better in the U.S. Today sees monthly Consumer Price Index (CPI) reports from both the U.S and the U.K, which will throw further light on the matter.