As traders anticipated the next inflation data and retail sales, the pound rose on Tuesday. The GBP/USD currency pair rose to its highest level since August 2, a slight increase of 1.28220.
UK inflation data ahead
Recent UK job numbers were the main driver of the GBP/USD rate. The Office of National Statistics reported that the unemployment rate in the UK dropped from 4,4% in May, to 4,2% in July. This was a significant improvement over the 4.5% consensus estimate.
In July, the data showed an increase of 135k claims from 36.2k. The wages in June remained stable at a rate of 5.4%, which was higher than expected.
The British economy is doing well, as the demand for employees has increased. The number of immigrants has increased, but they are not able to fulfill all the positions that Britain needs.
Wage growth may be a positive thing but it puts more pressure on Bank of England, which is already reducing interest rates. As people increase their expenditure, higher wages will lead to increased inflation. Analysts at ING stated in a report that it is likely the BoE’s rate-hike cycle will slow. The note noted that:
In the short-term, the Bank will be cautious in reducing rates due to the sticky wage growth. We think that the Bank, if there are further improvements in both the services and wage inflation rates over the coming months, will increase the rate of reductions beyond November.
This data was released a day before the UK Consumer and Producer Price Index data. The economists think that inflation in the UK remained low during July. The headline inflation is believed to have risen in July after falling all month this year.
Average estimates suggest that headline Consumer Price Index rose from 2.3% to 2.3%. The BoE targets 2.0% for core inflation. Core inflation is expected to fall from 3.5% in June to 3.4% in July.
Later this week, the UK government will publish the most recent retail sales figures. Retail sales may have continued to rise last month if the current trends are maintained.
US inflation data ahead
GBP/USD will respond to the US inflation statistics scheduled for Wednesday. The producer price index will come out Tuesday but its effect on the GBP/USD pair is limited.
According to economists, the inflation rate in the United States rose slightly in July. This is contrary to the trend of the last few months.
According to Investing the CPI headline is predicted to remain at 3.0% while the CPI core will have dropped to 3.2%. Both are expected to be slightly higher on a MoM level in July.
The Federal Reserve will continue to hold the same view of interest rates, even if the CPI data is not a surprise.
The bank said that in its most recent meeting it is focused solely on the dual mission of maintaining a stable job market and inflation.
The bank has now turned its attention to the job market which is showing signs of easing. In July, the unemployment rate increased from 3.5% to 4.3%. This trend is likely to continue.
The question then isn’t if, but rather when will the Fed start cutting rates. The Fed will start cutting rates as early as its meeting in September, according to most analysts.
The magnitude of this upcoming rate cut is still unclear. Others have suggested a modest cut , while others urge caution and suggest the Fed reduces rates by only 0.25%.
Technical analysis of the GBP/USD
On the daily chart, it is clear that GBP/USD has experienced a bullish trend since October of last year when its exchange rate bottomed out at 1,2040. The pair hit a peak of 1.3043 at the end of August.
Blue is the color of the channel that has been formed by this pair. It has also moved over the lower part of this channel. The 50-day Exponential Moving Average is being challenged.
The MACD indicator as well as the Relative Strength Index and Stochastic Oscillator all point upwards. The pound-sterling pair is therefore likely to continue its upward trend as buyers aim for the important resistance level at 1.2910.
A drop below the important support level of 1.2700, on the other hand, will indicate further downside. If the price drops below the lower edge of the channel, it will indicate further downside.
This article Pound Sterling (GBP/USD), steady ahead of US CPI and UK CPI appeared first on The ICD
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