Pound Stumbles on Soft Inflation

Published on: Feb 14, 2024|3 min read

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London: 14 February 2024 (TraderMade): GBPUSD slumps after UK inflation data dampens hopes for faster rate hikes, but BoE's stance remains uncertain.

Key Takeaways

Soft UK inflation: Annual inflation held steady at 4.0% in January, but monthly prices fell surprisingly by 0.6%.
BoE rate cuts on the horizon? Lower inflation data fuels speculation of earlier rate cuts by the Bank of England (BoE).
US inflation lingers: Sticky US inflation pressures dampen hopes for Fed rate cuts, boosting the Dollar.
GBPUSD under pressure: Pound Sterling slides as market sentiment turns cautious and safe-haven assets gain favor.
BoE Governor's testimony awaited: Andrew Bailey's comments on today's data could impact GBPUSD direction.

GBPUSD on a Downward Trend: Watch Key Support Levels

The below chart shows a recent downward trend for GBPUSD:

Closing price on 7 February: 1.26282
Closing price on 9 February: 1.263
Closing price on 13 February: 1.25932
Current live mid-price: 1.25469

This indicates a decline of ~0.65% over the past week. Additionally, the current live price is below the closing price on 7 and 9 February, signifying further downward pressure.

Key Support Levels to Watch:

1.2550: Psychological level and recent low.
1.2520: 5 February low.
1.2500: Psychological level and round number.

Factors to Consider:

Overall market sentiment: Risk aversion or flight to safety can impact GBPUSD.
Economic data: Upcoming releases from the UK and US can influence the pair.
Central bank policies: BoE and Fed policy stances can affect the relative attractiveness of currencies.

Overall: While the short-term trend for GBPUSD appears downward, key support levels and broader market factors may influence its future direction. Close monitoring of upcoming data and events is crucial for determining the pair's next move.

GBPUSD CHART

Inflation Surprise Weighs on Pound

January inflation data in the UK was softer than expected, with monthly prices falling and annual inflation holding steady. This unexpectedly low inflation raises hopes for an earlier BoE pivot to rate cuts, potentially weakening the Pound.

BoE's Balancing Act

While softer inflation appears optimistic, the BoE may remain cautious due to persistent core inflation and global uncertainties. Governor Bailey's testimony today could shed light on the BoE's stance and impact investor sentiment towards GBPUSD.

Dollar Finds Support

Stubborn US inflation data keeps the Federal Reserve's hawkish stance intact, boosting the US Dollar's appeal. This creates a headwind for the Pound, adding downward pressure on GBPUSD.

Market Watch

Market participants’ focus remains on BoE Governor Bailey's testimony and any clues on the timing of potential rate cuts.
Broader market sentiment and global economic developments will also influence the trajectory of GBPUSD.

Summary

Softer UK inflation data has sparked speculation of earlier BoE rate cuts, putting downward pressure on the Pound. However, the BoE's cautious stance and persistent global uncertainties introduce an element of uncertainty.

With the US Dollar finding support from hawkish Fed signals, GBPUSD faces headwinds. Governor Bailey's testimony today and developments in the global economy will be crucial in determining the Pound's next move.