The results of the US economic data are still in favor of the continued strength of the USD against most other major currencies. High inflation in Britain to the highest in six months only provided the GBP/USD with support towards the 1.3023 resistance, and the pair returned fast to drop towards the 1.2907 support, before settling around 1.2925 in the beginning of Thursday’s trading. The US currency has the confidence of investors and markets, as the US economy has not been affected at all by the increasing global fears of the Corona pandemic, which struck the second largest economy in the world, while it was preparing to recover from the slowdown caused by the global trade war.
Official data showed that consumer price inflation in Britain rose in January 2020, which undermined expectations that the British Central Bank will cut interest rates as expected. The National Statistics Agency announced that the annual inflation rate rose to 1.8% from 1.3% in December, which is an unusual sharp increase due to changes in volatile electricity prices, and also due to more expensive services.
This jump is likely to weaken expectations that the Bank of England may cut interest rates, which tends to help economic growth, but also push prices higher. The bank wants inflation to be near 2%. Bank of England policy makers have suggested in recent weeks that they may be forced to cut interest rates as economic growth remains weak - and the British economy did not grow at all in the fourth quarter amid heightened uncertainty about Brexit and the early general elections that took place in the country in December 2019.
Conservatives led by Prime Minister Boris Johnson won that election with a sweeping victory, and Britain left the European Union at the end of January 2020. Analysts note that despite fluctuating energy prices, there is a steady increase in prices from the services sector, which makes up the bulk of the British economy.
On the other hand, the US Federal Reserve reiterated through its minutes of its last meeting its confidence in the economic performance of the United States, and that its monetary policy is well suited to this performance. Also, it stated that external risks didn’t have much effect on this performance, referring to Coronavirus, and that the bank is always ready to provide what is needed to revive the economy.
According to the technical analysis of the pair: The return of the GBP/USD price to stabilize below the 1.2900 support as it is now, is a new downward momentum, as shown on the daily chart below. The closer the trade negotiations between the European Union and Britain, the more pressure will be on the pound. The closest support levels for the pair are currently 1.2880 and 1.2800. On the upside, stability above the 1.3000 resistance is an opportunity to correct higher, and at the same time the pair is still exposed to selling pressure at every attempt to rebound.
For the economic calendar data: From the UK, we have British retail sales figures. From the United States, we have the jobless claims and the Philadelphia industrial index.
