GBP/USD Price Analysis – Oct 18, 2023

Daily Price Outlook

Despite the US Dollar's initial attempt to recover from previous losses, GBP/USD halted its decline and gained momentum, trading at approximately 1.2182 during the European session on Wednesday. However, the positive economic data from the United States initially exerted some downward pressure on the pair, but this effect proved to be short-lived. The United Kingdom's CPI for September, which surged to 6.7% year-on-year, exceeded the expected 6.5%. This unexpectedly high UK CPI figure could potentially strengthen the GBP against the USD by signaling increasing inflation and the possibility of interest rate hikes. This, in turn, would make the GBP more appealing to investors.

UK CPI Data Shows Resilient Inflation, Limited Impact on GBP/USD

According to official data from the Office for National Statistics (ONS), the United Kingdom's Consumer Price Index (CPI) remained stable with a 6.7% annual increase in September, in line with the August figure, and surpassing the anticipated 6.5% rise. The Core CPI (excluding food and energy) increased by 6.1% year-on-year, slightly lower than August's 6.2%, which was in line with the expected consensus of 6.0%.

In the meantime, the All Services CPI registered a 6.9% year-on-year growth, a slight uptick from August's 6.8%. In terms of monthly changes, the UK CPI increased by 0.5% in September, surpassing the expected 0.4% rise and exceeding August's 0.3%.

In response to the UK CPI data, GBP/USD showed a subdued reaction, continuing its recovery trajectory and hovering around 1.2192, marking a 0.12% gain for the day. This development is of importance as it reflects the current inflation rate in the UK, with the potential to impact the country's economic policies and currency exchange rates.

Anticipation for UK CPI Data on Wednesday

Looking ahead to Wednesday, investors have their eyes on the UK Consumer Price Index (CPI). Forecasts suggest a slight decrease in the annual figure, shifting from 6.7% to 6.5%. The Core CPI, which excludes volatile items, is also expected to ease from September's 6.2% to 6%.

Despite the moderation in the annual figures, there is an expectation of a notable increase in the monthly CPI, projected to rise from 0.3% to 0.4%. If indeed monthly inflation does increase, it could trigger speculation about the Bank of England (BoE) contemplating another interest rate hike. Currently, the likelihood of a 25 basis point BoE rate hike stands at approximately 50% for this cycle. Hence, the potential decrease in annual CPI and an increase in monthly CPI in the UK could lead to GBP/USD volatility, with markets closely watching for BoE rate hike speculation.

GBP/USD - Technical Analysis

The GBP/USD, colloquially known as "Cable," has always been a significant pair in the forex markets. It serves as a temperature gauge for the relative economic strength and geopolitical dynamics between the UK and the US. As of our analysis date, October 18, the pair stands at 1.21796, noting a slight uptick of 0.20%.

The pivotal level to monitor is 1.2220. On the upside, resistances lie at 1.2274, followed by 1.2338, and a more prominent level at 1.2421. On the downside, key supports are stationed at 1.2124, followed by 1.2069, and 1.2020.

In the realm of technical indicators, the RSI reads 47, suggesting a somewhat bearish sentiment as it's below the 50 midpoint. Interestingly, the MACD has shown a bullish sign, with its line crossing above the signal line, suggesting potential upward momentum. The current price is marginally below the 50 EMA at 1.2199, a level that might act as a short-term pivot.

The GBP/USD paints a mixed picture. It leans bearish as prices remain below 1.2200, but the MACD suggests a potential bullish momentum. This contradiction suggests traders might be in for a period of consolidation or volatility. In the short term, the pair could waver around the 1.2200 mark, possibly testing the nearby resistances if the upward momentum continues.

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