- GBP/USD has declined in response to the risk-averse market mood.
- Higher than expected UK inflation could push the pair higher.
- Wednesday's four-hour chart is painting a mixed picture
The quadruple top has crumbled – yet only temporarily. GBP/USD's move above the stubborn 1.3895 level has proved temporary and so has dollar weakness in response to weaker than expected US inflation figures. On the other side of the pond, UK consumer prices beat estimates – building a fundamental case for bulls.
The greenback first advanced in response to the meager 4% YoY increase in the US Core Consumer Price Index (Core CPI) for August. The 0.1% MoM was the lowest since February and vindicates Federal Reserve Jerome Powell's stance that inflation is transitory.
US Inflation Analysis: Team Transitory wins, dollar loses, why the trend may extend
However, some suspect that the cooldown in prices is due to falling demand, and such concerns of a cooldown weigh on sentiment – boosting the safe-haven dollar. Disappointing Chinese data also dampened the mood, adding to worries of weaker global growth. That mood may change when investors return to their erstwhile instincts of "buy the dip."
US Consumer Price Index: Is stagflation next?
GBP/USD has dropped due to second thoughts about weak US inflation and could rise on parallel UK data. The headline UK CPI jumped from 2% to 3.2% YoY in August, beating estimates of 2.9%. Core CPI also jumped above estimates, reaching 3.1%.
Will that tip the scales toward a rate hike? Bank of England Governor Andrew Bailey said that the Monetary Policy was split on the question if raising borrowing costs has reached its time, and these figures could push it to act sooner rather than later. GBP/USD could rise in response to mere speculation about such a move.
Overall, based on inflation figures only, GBP/USD has room to rise. There are additional factors, such as lingering Brexit issues, uncertainty about US infrastructure spending, and covid, where Britain has fewer cases on a per population basis than the US.
The fundamental bullish case is there – what about the charts?
GBP/USD Technical Analysis
Pound/dollar is suffering from downside momentum on the four-hour chart but trading above the 100 and 200 Simple Moving Averages. The failure to hold above the quadruple top of 1.3895 sent the pair back to the middle of the all-too-familiar 1.3725-1.3895 range, where it seems balanced.
Support awaits at 1.3790, the daily low, and then by 1.3725 mentioned earlier. Further down, the next lines to watch are 1.3680 and 1.3635.
Cable is capped at 1.3850, ahead of the 1.3895 level mentioned earlier. Further above, Tuesday's swing high of 1.3915 is the next line to wach.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD clings to daily gains above 1.0650
EUR/USD gained traction and turned positive on the day above 1.0650. The improvement seen in risk mood following the earlier flight to safety weighs on the US Dollar ahead of the weekend and helps the pair push higher.
GBP/USD recovers toward 1.2450 after UK Retail Sales data
GBP/USD reversed its direction and advanced to the 1.2450 area after touching a fresh multi-month low below 1.2400 in the Asian session. The positive shift seen in risk mood on easing fears over a deepening Iran-Israel conflict supports the pair.
Gold holds steady at around $2,380 following earlier spike
Gold stabilized near $2,380 after spiking above $2,400 with the immediate reaction to reports of Israel striking Iran. Meanwhile, the pullback seen in the US Treasury bond yields helps XAU/USD hold its ground.
Bitcoin Weekly Forecast: BTC post-halving rally could be partially priced in Premium
Bitcoin price shows no signs of directional bias while it holds above $60,000. The fourth BTC halving is partially priced in, according to Deutsche Bank’s research.
Week ahead – US GDP and BoJ decision on top of next week’s agenda
US GDP, core PCE and PMIs the next tests for the Dollar. Investors await BoJ for guidance about next rate hike. EU and UK PMIs, as well as Australian CPIs also on tap.