Weaker UK Inflation Data
GBPUSD has come under fresh selling pressure midweek on the back of softer UK inflation data this morning. UK headline CPI held at 3.8% on an annualised basis last month, despite forecasts for a fresh rise to 4%. The core reading, which strips out food and energy prices, was seen falling to 3.5% from 3.6% prior, again lower than the 3.7% the market was looking for. Notably, too, services inflation (a key component being tracked y the BOE) held steady at 4.7%, below the 4.8% the market was looking for and below the 5% level offered in he more recent BOE forecast. Finally, food prices too were seen falling on the month, now down 05% from the BOE’s August forecast level.
BOE easing Expectations
On the back of the data, traders’ BOE rate-cut expectations have lifted accordingly. While an unchanged decision is still seen next month, pricing for a December BOE cut has jumped higher, reflected in the weakness we’re seeing in GBP. However, if we see further weakness in incoming data, November rate cut expectations could start to push higher too, increasing the downside pressure on GBP.
Stronger Dollar
Alongside UK data weakness, GBPUSD is also being weighed on by a stronger US Dollar this week. Optimism over US/China trade tensions, as well as an easing of concerns over US regional banking health, has seen the greenback coming back into favour. Looking ahead, US CPI on Friday will be key to watch. If we get any upside surprise this should drive the USD rally furtehr, putting greater pressure on GBPUSD. However, any weakness could see USD unwinding as Fed easing expectations come back into focus.
Technical Views
GBPUSD
Following the break down through the bull trend line from YTD lows, price is pushing further down below the 1.3434 level. 1.3177 is the next big support level to watch. Bulls will need to defend this area to prevent a deeper drop towards 1.30 next and 1.27 beyond, in line with falling momentum studies readings.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.