The GBP/USD pair is facing resistance near the 1.2850 level as it struggles to build on Tuesday’s gains. The softer-than-expected inflation data from the UK is limiting Pound Sterling’s upward movement ahead of the release of US Consumer Price Index data for July by the US Bureau of Labor Statistics.
The UK’s Office for National Statistics reported that inflation in the UK, as measured by the Consumer Price Index (CPI), rose to 2.2% on a yearly basis in July, below market expectations of 2.3%. The core CPI also decreased to 3.3% from 3.5% in June, leading to a decrease in interest in Pound Sterling.
Looking ahead, the US CPI data for July is expected to show a monthly increase of 0.2% for both the CPI and core CPI. Market expectations are currently pricing in a higher than 50% probability of the Federal Reserve lowering the policy rate by 50 basis points in September.
If the US core CPI data surpasses market expectations, there could be a reassessment of the likelihood of a large rate cut in September, leading to a rebound in US Treasury bond yields and a strengthening of the US Dollar. This scenario could cause the GBP/USD pair to decline. Conversely, a soft print in the US CPI data could have the opposite effect on the pair.
GBP/USD Technical Analysis
On the technical side, GBP/USD briefly dipped below the 200-period Simple Moving Average on the 4-hour chart but closed above this level, indicating a bullish bias in the near term. The Relative Strength Index also suggests a bullish trend.
Key resistance levels for GBP/USD include 1.2850, 1.2900, and 1.2950, while support levels are at 1.2825, 1.2800, and 1.2760.
Inflation FAQs
What is inflation?
Inflation measures the rise in the price of a representative basket of goods and services. Core inflation excludes volatile elements such as food and fuel and is the figure targeted by central banks to keep inflation at a manageable level, usually around 2%.
What is the Consumer Price Index (CPI)?
The CPI measures the change in prices of goods and services over time. Core CPI excludes food and fuel inputs and is targeted by central banks. Higher core CPI usually leads to higher interest rates and a stronger currency.
How does inflation affect currency value?
High inflation usually leads to higher interest rates, attracting more capital inflows and strengthening the currency. Lower inflation has the opposite effect.
What is the impact of inflation on Gold?
High inflation leads to higher interest rates, which are negative for Gold. Lower inflation tends to be positive for Gold as it brings interest rates down.
Overall, the GBP/USD pair is facing resistance near 1.2850 due to softer UK inflation data and uncertainty surrounding US CPI figures. Traders should keep an eye on these key levels and economic indicators to make informed trading decisions.