UK Inflation Jumps
GBPUSD traded up to fresh highs for the year today on the back of the latest UK economic data this morning. Annualised headline CPI was seen jumping to 3.5% from 2.6% prior, above the 3.3% the market was looking for. Similarly, core CPI was seen rising to 3.8% from 3.4% prior, above the 3.6% the market was looking. Notably, the breakdown of the data shows that services inflation spiked to 5.4% from 4.7% prior, well above the 4.8% the market was looking for. The BOE has put a lot of emphasis on the services inflation reading recently. This latest increase, together with the surge in headline inflation, creates a strong argument against any further near-term rate cuts from the BOE.
Inflation Spike Temporary?
Despite the hot data, the rally in GBP this morning was seen quickly cooling with GBPUSD revering back under the prior 2025 highs. Part of this could be due to the view that the spike ins a ‘one off’. Analysts at ING note that the majority of the rise in last month’s inflation data looks linked to an increase in road tax, along with higher airfares and package holiday prices which were impacted by the date of Easter this year. As such, the key thing for BOE expectations now will be to see whether inflation falls back in line at next reading. If so, August easing expectations should remain in place. However, if inflation is seen sticking at higher levels this could pace the way for a fresh push higher in GBP as traders dismantle summer easing expectations.
Technical Views
GBPUSD
The rally in GBPUSD has stalled for now into a fresh test of the 1.3436 level resistance & YTD highs. With a potential double top forming and strong bearish divergence in momentum studies, risks of a correction lower are seen. 1.3258 will be the key pivot for bulls to defend to maintain the upside focus. Below there, 1.3033 and the bull channel lows will be next support to watch.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Futures and Options: Trading futures and options on margin carries a high degree of risk and may result in losses exceeding your initial investment. These products are not suitable for all investors. Ensure you fully understand the risks and take appropriate care to manage your risk.
With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.