GBPUSD FUNDAMENTAL BACKDROP
The British pound rallied this morning after the UK CPI report surpassed forecast by quite some margin (see economic calendar below). Core inflation was the biggest surprise and now reached a level last seen since 1992! This almost shores up a 25bps interest rate by the Bank of England (BoE) in their next meeting. That being said, some positivity stems from the PPI metric which has slipped broadly lower. Headline inflation did fall sharply despite beating estimates; however, I do not think it is enough to deter another hike.
ECONOMIC CALENDAR
Money market pricing has been ‘hawkishly’ revised and after Governor Andrew Bailey’s comments yesterday about the need to tackle persistently high inflationary pressures, today’s data could cement the continuation of aggressive monetary policy from the central bank. Rate expectations are now priced at almost 60bps at year end and it is likely Governor Bailey’s speech later today could be slightly more hawkish than yesterday.
The prolonging of the US debt ceiling negotiations is also a key variable for cable and the longer it drags on, the more anxious markets become.
BANK OF ENGLAND INTEREST RATE PROBABILITIES
TECHNICAL ANALYSIS
GBP/USD DAILY CHART
Chart prepared by Warren Venketas, IG
Key resistance levels:
- 1.2680
- 1.2584
- 1.2500
Key support levels:
- 50-day MA (yellow)
- 1.2400
- 1.2345
- 1.2275
BULLISH IG CLIENT SENTIMENT
IG Client Sentiment Data (IGCS) shows retail traders are currently net LONG on GBP/USD with 52% of traders holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment but due to recent changes in long and short positioning, we arrive at a short-term upside bias.
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