ANALYSIS OF THE POUND STERLING AND CONVERSION POINTS
UK inflation beats forecasts but remains on a downward trend. Bank of England hike 25bp in May almost certain. GBP/USD has yet to show any significant movement after inflation.
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FUNDAMENTAL CONTEXT OF GBPUSD
UK Chancellor Hunt: “The CPI figures reaffirm exactly why we need to continue our efforts to reduce inflation.”
The British pound is slightly weaker against the USD this morning despite UK inflation (see economic calendar below) surprising higher. The hawkish comments from the Fed’s Bostic and Bullard seem to be carrying over from the US trading session, but I think as Europe connects, the pound could recoup some lost gains.
ECONOMIC CALENDAR
Source: DailyFX Economic Calendar
Looking at the CPI chart, the main sectors that have contributed to the inflation impression come from food and non-alcoholic beverages and leisure and culture. Both the core and headline numbers beat estimates, while the PPI followed suit (albeit below February’s print). The UK now remains the nation with the highest inflation rate in Western Europe, putting additional pressure on the Bank of England (BoE).
UK inflation to cement another rate hike in May?
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Looking at money market prices below, the BoE is expected to raise interest rates for another 25 bps next month with a quasi 100% probability! This week has been particularly important for the UK economy and its incoming data starts with yesterday’s jobs report which reiterated the tight labor market environment in the UK. Combining these two data points, the BoE may still need to do more in terms of monetary policy tightening to quell inflationary pressures. The first hints have come from Chancellor Hunt of the United Kingdom in the previous appointment. Later today, the BoE’s Catherine Mann is scheduled to speak and may echo those hawkish sentiments.
BANK OF ENGLAND PROBABLE INTEREST RATES
Source: Refinitiv
TECHNICAL ANALYSIS
GBP/USD DAILY CHART
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Daily GBP/USD price action remains centered around the 1.2400 psychological level as markets reflect on recent data. I expect more upside for the remainder of the trading day as the Fed has been losing its recent effectiveness, leaving room for GBP strength.
Key resistance levels:
Key Support Levels:
MIXED FEELING FROM THE IG CUSTOMER
IG Customer Sentiment (IGCS) data shows that retail traders are currently net SHORT in GBP/USD with 52% net short traders (as of this writing). At DailyFX we normally take a contrary view to crowd sentiment, but due to recent changes in long and short positioning, we come to a cautious short-term bias.
Contact and follow Warren on Twitter:@WVenketas
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