- Traders are still evaluating yesterday’s UK CPI data and are increasingly skeptical of a 50bps rate hike from the BOE next month.
- GBP/USD is falling for its 5th straight day, losing nearly 300 pips over that period.
- 1.2850 support could lead to a bounce ahead of the weekend, but if that level gives way, a continuation to below 1.2700 could be at hand.
GBP/USD Fundamental Analysis
Sometimes, all it takes is a little time.
The UK economic calendar was absolutely barren today, but traders are nonetheless reevaluating their previous assumptions about how hawkish the Bank of England may be, especially in the wake of yesterday’s UK CPI report. Consumer prices in the UK rose “only” 7.9% y/y, well below the 8.2% reading expected, and the more predictive “core” inflation rate was only 6.9% vs. 7.1% anticipated.
Accordingly, traders are now pricing in a 25bps BOE rate hike in early August as the odds-on favorite and have taken their projection for the BOE’s terminal rate down nearly 75bps from the start of the month to below 6.00%.
Meanwhile, across the Atlantic, the greenback is benefitting from a surprise decline in initial unemployment claims to 228K this morning, though the Philly Fed and Existing Home Sales figures data came in slightly worse than expected. Ultimately, if the global economy is showing signs of downshifting, sterling may be far more vulnerable that the US dollar given the substantially higher expectations for additional rate hikes in the UK.
British Pound Technical Analysis – GBP/USD Daily Chart
Source: TradingView, StoneX
Looking at the chart, GBP/USD is working on its 5th consecutive down day, falling from previous-support-turned-resistance from the December 2021 lows at 1.3150 at this time last week down to test the mid-June highs near 1.2850 as we go to press.
Purely from a technical perspective, this is a logical area for GBP/USD bears to take profits ahead of the weekend, so a bounce back above 1.2900 could be in the cards ahead of the weekend. That said, if tomorrow’s UK retail sales report comes in lower than expected, GBP/USD could extend its losses, with room for a continuation down to trend line support under 1.2700 next week if the 1.2850 support level gives way.
One way or another, GBP/USD is a key short-term inflection point, so traders should keep a close eye on the price action over the next 24 hours for hints about what to expect next week.
-- Written by Matt Weller, Global Head of Research
Follow Matt on Twitter: @MWellerFX