POUND STERLING ANALYSIS & TALKING POINTS
- UK inflation beats forecasts but continues to trend lower.
- Bank of England 25bps hike in May an almost certainty.
- GBP/USD yet to show any significant move post-inflation.
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GBPUSD FUNDAMENTAL BACKDROP
UK’s Chancellor Hunt: “The CPI figures reaffirm exactly why we must continue with our efforts to drive down inflation.”
The British pound is marginally weaker against the USD this morning despite UK inflation (see economic calendar below) surprised to the upside. Hawkish commentary from the Fed’s Bostic and Bullard seem to be carrying over from the US trading session but I feel as Europe comes online, the pound could claw back some lost gains.
ECONOMIC CALENDAR
Source: DailyFX Economic Calendar
Looking at the CPI graphic, the main sector contributors to the inflation print came from food and non-alcoholic beverages and recreation and culture. Both core and headline figures surpassed estimates while PPI followed suit (albeit lower than the February print). The UK now remains the nation with the highest inflation rate in western Europe placing 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 pricing below, the BoE is expected to increase interest rates by another 25bps next month with an almost 100% probability! This week has been of particular importance for the UK economy and it’s input data beginning with yesterday’s jobs report that reiterated the tight labor market environment in the UK. If we couple these two data points, the BoE may still need to do more in terms of monetary policy tightening to quell inflationary pressures. The first signs of which have come from the UK’s Chancellor Hunt in the quote above. Later today, the BoE’s Catherine Mann is scheduled to speak and may well echo these hawkish sentiments.
BANK OF ENGLAND INTEREST RATE PROBABILTIEIS
Source: Refinitiv
TECHNICAL ANALYSIS
GBP/USD DAILY CHART
Chart prepared by Warren Venketas, IG
Daily GBP/USD price action remains centered around the 1.2400 psychological level as markets mull over the recent data. I expect further upside throughout the rest of the trading day as Fed speak/guidance has been losing its effectiveness of recent, leaving room for GBP strength.
Key resistance levels:
Key support levels:
MIXED IG CLIENT SENTIMENT
IG Client Sentiment Data (IGCS) shows retail traders are currently net SHORT on GBP/USD with 52% of traders net short (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 cautious bias.
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