British Pound’s Rally Take Pause

The British pound has reversed directions on Wednesday and posted losses. In European trade, the pair is trading at 1.4153, down 0.26% on the day.

UK consumer inflation rises

Inflation has become the hot topic of discussion in the market after US inflation numbers surged last week. With the British economy reopening and health restrictions being eased, it comes as no surprise that inflationary pressures in the UK are on the rise.

Headline CPI for April jumped to 1.7%, up from 0.7% (YoY). However, it needs to be noted that this high figure is a result of comparing prices at the time that Covid was at its height. A report by ING projects that inflation will reach the 2% level during the summer and should remain above 2% into 2022.

How will the BoE respond to the latest CPI data? The ING report states that the BoE is unlikely to feel any pressure to tighten policy, even with this uptick in inflation. This could change if wage pressures increase, although ING expects wage pressures to be muted and does not forecast a BoE rate hike prior to 2023.

Inflation is on the minds of investors as the FOMC releases its minutes from the April policy meeting (18:00 GMT). There is some nervousness in the market ahead of the release, which could mean some volatility from the US dollar in today’s North American session. Fed policymakers are expected to reiterate that it is premature to discuss easing the massive asset-purchase program until the recovery has deepened. The Fed has insisted that the recent surge in inflation is transitory, but an acknowledgment of inflation risk could boost the dollar.

GBP/USD Technical Analysis

GBP/USD Daily Chart

  • GBP/USD is testing resistance at 1.4180, followed by resistance at 1.4262
  • There are support lines at 1.4003 and 1.3908

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