GBP/USD Price Analysis – Sep 20, 2023

Daily Price Outlook

The GBP/USD pair failed to stop its losing streak and remained well offered around 1.2345 level as the UK's Consumer Price Index (CPI) report for August was lower than expected, dampening the Pound Sterling's appeal. Investors anticipated a higher CPI due to rising energy prices but were surprised by the soft report. This led to a significant decrease in the Pound's value against the US Dollar. Core inflation also slowed down noticeably, showing reduced demand for everyday items. Additionally, the UK's Producer Price Index (PPI) for core output shrank in August, revealing that producers were less confident about demand as high inflation squeezed household incomes.

UK Inflation Data & GBP/USD Reaction; Focus on BoE Meeting

According to the UK's Office for National Statistics (ONS), the country's annual inflation, as measured by the Consumer Price Index (CPI), increased by 6.7% in August, slightly down from July's 6.8%. This was lower than the expected 7.1% rise. Core CPI, excluding volatile items, rose by 6.2% year-on-year, missing the estimated 6.8%. The Services CPI increased by 6.8%, lower than July's 7.4%. Food and accommodation services had the most significant impact on lowering the CPI.

The UK Finance Minister, Jeremy Hunt, mentioned that their plan to tackle inflation is showing progress, although inflation remains too high. Following the CPI data, the GBP/USD pair dropped around 40 pips to reach below 1.2350, a multi-month low.

Meanwhile, the immediate market impact is likely to be limited because everyone's attention is on the Bank of England (BoE) meeting this Thursday. However, the chances of aggressive policy tightening seem to be diminishing. BoE Governor Andrew Bailey recently suggested they're nearing the end of interest rate hikes. In the meantimel, the concerns about a potential recession and a cooling UK job market could prompt the BoE to pause rate hikes, capping potential gains for the GBP/USD pair.

FOMC Policy Decision Awaited: Impact on GBP/USD

Besides that, investors are awaiting the FOMC policy decision to be announced during the US session. The Federal Reserve (Fed) is likely to maintain current interest rates, but there's market anticipation of a possible 25 bps increase later this year. Analysts will closely watch Fed Chair Jerome Powell's post-meeting remarks and the monetary policy statement for insights on future rate hikes, affecting the USD and providing new momentum for the GBP/USD pair.

GBP/USD - Technical Analysis

The GBP/USD currency pair remains anchored around the 1.2400 mark, consistently positioning below it. The EMA50 exerts ongoing downward pressure on the price, suggesting a potential resumption of the prevailing bearish momentum, targeting the significant 1.2310 level next.

The established bearish channel affirms the longer-term bearish trajectory, aiming for objectives below the aforementioned level. It's pivotal to note that a breach of the 1.2435 threshold would pivot the pair's direction upwards intraday, potentially reaching 1.2505 before encountering further bearish challenges.

Today's trading parameters are projected to span from a support at 1.2300 to a resistance boundary at 1.2445.