GBP/USD maintains post-BoE gains despite US CPI uptick

It has been quite a volatile day in the markets, with the pound taking centre stage on the back of a hawkish Bank of England policy statement. While only two MPC members voted for a rate rise, the Bank noted that the market is under-pricing the risk of a rate rise and that the majority of MPC members see scope for some reduction in stimulus in the coming months. That is provided that the economy “continues to follow a path consistent with the prospect of continued erosion of slack and a gradual rise in underlying inflationary pressure.”

Interestingly, the US dollar failed to rally much despite news US CPI rose by 0.4% month-over-month, which lifted the year-over-year rate to 1.9%. In fact, the GBP/USD pair hit a new session high of nearly 1.34 after the release of US inflation figures, which goes to show strength of the pound’s rally. As before, we continue to expect the GBP/USD will reach 1.35 in the coming days.

But understandably, the cable does look a little overbought in the short-term so a small pullback wouldn’t come as surprise to us now. In fact, the GBP/USD has hit one of our bullish targets at just shy of 1.34. As can be seen, it has reached the 127.2% Fibonacci extension level of the last corrective swing. The 161.8% extension level comes in at 1.3565, which sits 60 pips above the next key target at 1.3500/05 area. This psychologically important level was also the low from the year 2009. Once support, it could offer some resistance.

Meanwhile on the downside, we expect the broken resistance levels to turn into support, starting with 1.3325/30 level. But any move below 1.3160 – support and today’s low – would mark the end of the current uptrend.

Figure 1:

GBPUSD

Risk Warning Notice Foreign Exchange and CFD trading are high risk and not suitable for everyone. You should carefully consider your investment objectives, level of experience and risk appetite before making a decision to trade with us. Most importantly, do not invest money you cannot afford to lose. There is considerable exposure to risk in any off-exchange transaction, including, but not limited to, leverage, creditworthiness, limited regulatory protection and market volatility that may substantially affect the price, or liquidity of the markets that you are trading. Margin and leverage To open a leveraged CFD or forex trade you will need to deposit money with us as margin. Margin is typically a relatively small proportion of the overall contract value. For example a contract trading on leverage of 100:1 will require margin of just 1% of the contract value. This means that a small price movement in the underlying will result in large movement in the value of your trade – this can work in your favour, or result in substantial losses. Your may lose your initial deposit and be required to deposit additional margin in order to maintain your position. If you fail to meet any margin requirement your position will be liquidated and you will be responsible for any resulting losses.