Pressured British Pound Holds On Above $1.27 As US CPI Data Loom

GBP/USD Price and Analysis

• GBP/USD held above 1.27 on Wednesday, having regained it
• The Sterling market reckon rates will rise further, but maybe not much further
• The sparse UK data calendar gets a lot more crowded into next week

The British Pound faces a lack of domestic drivers mid-week and trades broadly flat against the United States Dollar as Wednesday’s European session winds down. The markets are understandably focused on Thursday’s inflation numbers out of the world’s largest economy, leaving Sterling largely at the mercy of developments in EUR/USD.

This month’s Bank of England interest-rate decision is already behind the Pound and, that being so, there’s not much on the UK economic calendar to look forward to before Friday’s growth figures (expected lackluster) and next week’s exciting slew of biggies which encompasses employment data to retail sales and, of course, inflation numbers.

GBP/USD has fallen quite sharply since the middle of July. For a variety of reasons, the United Kingdom has faced higher and more stubborn inflation than all other developed economies, and a sharper ‘cost of living crisis.’ However, there are signs that prices are beginning to roll over at last and, while the pound still benefits from the belief that local interest rates have further to rise, the market is increasingly convinced that it has seen the worst of this, and that, even in the UK, borrowing costs might start to come down towards the back end of 2024. Of course, this relatively sunny prognosis remains entirely data-dependent, but GBP/USD has duly backtracked.

The ‘USD’ side of GBP/USD is still looking at the possibility of higher rates too, of course, but maybe not too much higher.

Philadelphia Federal Reserve President Patrick Harker said in prepared remarks on his home turf that perhaps the Fed is at the point where interest rates can be left on hold barring any abrupt change of direction in the economic data. This took a little support away from the Dollar but other ‘Fed heads’ have sounded more hawkish than Mr Harker in recent days.

Asia’s major economic news was that China had slipped into deflation, but that ended up buoying risk appetite as investors hoped for more economic stimulus out of Beijing. Consumer prices fell by 0.3% on the year in July, having been flat in June.

The next major hurdle for GBP/USD will probably be Thursday’s US Consumer Price Index release for July. It’s expected to show headline inflation ticking up to an annualized 3.3% rate, from 3% in June, with the more closely watched ‘core’ rate which strips out the volatility of food and fuel prices tipped to remain steady at 4.8%. Responses to these data are fairly binary these days, with as-expected or stronger numbers likely to keep rate-hike hopes very much alive, supporting the greenback.

GBP/USD Technical Analysis

GBP/USD Daily Chart Compiled Using TradingView

Sterling bulls’ attempt to break into a trading band between 1.29917 and 1.33127 last seen between March 7 and April 22 last year earned them no more than a fifteen-month high in mid-July before prices headed lower. On August 2 the pair slipped below quite well-respected trendline support from last September when it fell through 1.2785 and, while it may be too soon to call that rising trendline conclusively abandoned, those bulls probably won’t want this week to close with the Pound below it.

Still, they have managed to regain the psychological 1.27 handle which was given up on Monday, but will probably face stiff resistance at 1.2825, where the trendline now comes in. Despite recent weakness, the Pound remains significantly above the first Fibonacci retracement of its ruse up from the lows of last September to July’s highs. That doesn’t come in until 1.24586. still significantly below the current market. Above that, last Thursday’s intraday low of 1.26203 may provide some near-term support.

Sentiment toward the pair is mixed at present according to IG’s own client data, with 55% bullish compared to 45% bearish.

For a Comprehensive Look at GBP/USD Sentiment and Why Changes Matter to Price Action, Download the IG Sentiment Guide Below

–By David Cottle for DailyFX