The U.K. Inflation Figures in Highlights!
The GBP/USD was closed at $1.3808 after placing a high of $1.3907 and a low of $1.3800. GBP/USD extended its loss and dropped for the second consecutive session on Tuesday amid the renewed strength in the U.S. dollar. The U.S. dollar was strong across the board as the U.S. CPI report from June came in higher than the expectations and supported the bets that Fed might start easing stimulus measures soon. The DXY surged to 92.81 level after rising for about 0.5% on the day and weighed on the currency pair GBP/USD.
At 04:01 GMT, the BRC Retail Sales Monitor for the year declined to 6.7% against the expected 11.5% and weighed on the British Pound that dragged GBP/USD pair further on the downside. From the U.S. side, at 14:57 GMT, the NFIB Small Business Index for June rose to 102.5 against the anticipated 99.5 and supported the U.S. dollar that added further loss in GBP/USD. At 17:30 GMT, the Consumer Price Index for June also surged to 0.9% against the predicted 0.5% and supported the U.S. dollar that added extra pressure on GBP/USD currency pair. The Core CPI for June rose to 0.9% against the estimated 0.4% that supported the greenback and added loss in GBP/USD.
At 23:00 GMT, the Federal Budget Balance was declined to -174.2B against the projected -205.0B that weighed on the U.S. dollar and further caped loss in GBP/USD. Investors have been optimistic about the anticipated tightening monetary policy from the central bank as the latest FOMC meeting minutes revealed that Fed officials were talking about early tapering. The June inflation data came in higher than expectations and supported the bets that Fed will soon start tapering asset purchases. These bets drove the U.S. dollar prices higher on Tuesday and kept GBP/USD pair under pressure.
However, some analysts believe that one month reading of higher inflation was not enough for Fed to start easing stimulus measures. Whereas, others believed that as the U.S. Consumer Prices rose to their 13-year higher level during last month, it should be enough for Fed to assume that prices were at alarmingly high levels.
On the flip side , the GBP struggled to gain strength against the U.S. dollar after a warning from the Bank of England. The BOE warned that an increase in risk-taking behavior triggers the danger of a sharp correction in asset valuation. If this occurred, it could directly impact the financial system, tightened financial conditions, and consequently, over the debt vulnerabilities within U.K. households and businesses.
British Pound was also under pressure as, despite the warnings from several global health experts, the U.K. Prime Minister Boris Johnson insisted on lifting all restrictions at Freedom Day on July 19 and said that the success of the U.K. vaccination drive should mitigate any significant risk to the healthcare system. However, the coronavirus cases and hospitalizations were continuously increasing in the region and were threatening the economy’s return to normal. Furthermore, the disputes over the size of the Brexit bill in the U.K. were also raising the international tensions that deteriorated the outlook of the Sterling and kept the GBP/USD pair under pressure throughout Tuesday.
GBP/USD Intraday Technical Levels
Pivot Point: 1.3838
GBP/USD - Technical Outlook
The GBP/USD is trading at 1.3842 level, having crossed over the 50 periods EMA at 1.3825 level. Continuation of a bullish trend extends bullish momentum towards the 1.3851 level, and violation of this level exposes the Sterling price towards the 1.3906 level. On the downside, the Cable pair’s support holds at 1.3801 level, and break out of this exposes Sterling towards 1.3755 level. The MACD has also crossed over the 0 levels, supporting an upward trend in the GBP/USD price. It will be a big day for the GBP as the U.K. economy is due to report the CPI figures. Economists are expecting these figures to perform better than in previous months. CPI data is forecasted to surge from 2.1% to 2.2%, and if this happens, the Sterling can gain support. Let’s keep an eye on the 1.3838 level as Sterling’s bullish bias remains strong over this pivot point level. All the best!
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