GBP/USD Forecast: Rising inflation to confirm rate hike as politics weighs

The UK Prime Minister Theresa May won the vote on trade bill defeating the rebellion in a tight vote of 307 to 301 only under early elections threat.
The UK headline inflation is set to accelerate to 2.6%as oil prices increased.
Brexit uncertainty weighs on Sterling overshadowing the fundamentals leading to August rate hike.

Mario Blascak, PhD Independent Analyst

The GBP/USD has been pressed lower to trade below 1.3100 against the US Dollar as the Brexit-related uncertainty overshadows the economic fundamentals indicating the Bank of England rate hike on August 21, when the Bank releases its August Inflation Report.

The UK labor market statistics confirmed the underlying strength of the UK labor market with the unemployment rate stuck to 4.2%, the lowest level since 1975 and the wages rising 2.7% over the year in three months to May excluding bonuses while increasing 2.5% over the year when bonuses are included.

With the post-Brexit Sterling slump being absorbed by rising inflation, domestic price pressures stemming from tight UK labor market including rising wages are set to take over and drive inflation going further as the economy shakes off the adverse weather-related economic slowdown at the beginning of this year.

Sterling saw little support in the outlook for the Bank rate increase that the vast majority of the economists are timing for the August release of the Bank of England’s Inflation Report.

Technically, the GBP/USD is trading at the brink of 1.3100, that represents an important support level coinciding with 38.2% Fibonacci retracement of a post-Brexit slump from 1.5020 to 1.1940. Technical oscillators including the Relative Strength Index and Slow Stochastics moved lower with the potential to go further down as Momentum remains stuck to the neutral zone. Moreover, the downward sloping trend is confirmed by the death-star crossover of 50 days moving average crossing both 100 and 200-days moving averages. With GBP/USD closing well below 1.3100, the psychological 1.3000 level is the near-term target before the currency pair target next Fibonacci retracement level of 23.6% at 1.2670.

GBP/USD Daily chart

Author

Mario Blascak, PhD

Independent Analyst

Dr. Mário Bla&scaron;čák worked in professional finance and banking for 15 years before moving to journalism. While working for Austrian and German banks, he specialized in covering markets and macroeconomics.

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