- The pound made a temporary advance in the hours following the release of UK inflation figures for September, which beat analysts' expectations and prompted markets to bet that the probability of the Bank of England raising interest rates now stand at 50%.
- However, the gains of the British pound currency pair against the US dollar, GBP/USD, did not exceed the level of 1.2211 before returning to stability downward around the support level of 1.2125.
- At the time of writing the analysis, this performance portends the possibility of the currency pair sterling/dollar moving towards the psychological support level of 1.2000.
Data in Focus Today
Clearly, the GBP/USD currency pair will be affected today by investor sentiment, the performance of global financial markets, the reaction to the announcement of US data, the number of weekly jobless claims, the reading of the Philadelphia Industrial Index, and then most importantly, statements by US Federal Reserve Governor Jerome Powell.
Yesterday, the Office for National Statistics said that headline inflation in the UK rose by 6.7% year-on-year in September, unchanged from August, but higher than the fall to 6.6% that markets were looking for. The figure rose on monthly basis to 0.5% from 0.3% that was expected. Also, core CPI inflation rose 6.1% year-on-year in September, down from 6.2%, but higher than analysts' expectations for a decline to 6.0%.
On the hand, the prospect of a rate hike will not disappear completely, as services inflation, which the Bank of England is paying close attention to, suddenly rose from 6.8% to 6.9%. In this regard, George Vesey, senior forex analyst at “Convera”, says, “Financial markets show that the chance of another interest rate increase from the Bank of England before the end of the year is slightly less than 50-50.” Moreover, interest rates are expected to remain high for an extended period as officials continue their battle to bring inflation back on target.”
Likewise, this latest release of inflation is not decisive enough to influence the bank to raise interest rates again in November, especially after Tuesday's wage figures showed that wage pressures are underway, which could contribute to lower inflation rates in the future. Meanwhile, the pound fell against most of the major currencies after the wage figures were released, which also led us to think that the market may have already moved before the inflation release. shortly, the market tracks and reacts to any data releases that support the narrative that the Bank of England is done raising interest rates.
Finally, the Bank of England would keep interest rates unchanged in November, as the large positive contribution to inflation is linked to higher fuel costs, which is due to the recent rise in global oil prices. With the decline in oil prices, this trend may decline in the coming weeks. And about the future of British inflation. Pantheon Macroeconomics continues to believe that consumer prices will rise slowly enough over the coming months to reduce the headline rate of CPI inflation to an average rate of 4.5% in the fourth quarter and 4.0% in the first quarter. They expect the key interest rate to be between 2.0% and 3.0% for the rest of 2024. If so, the MPC will not need to leave the interest rate at 5.25% for very long next year.
GBP/USD Forecast Today
GBP/USD has now fallen to trade below the 100-hour moving average line. As a result, the currency pair appears to be moving near the oversold levels of the 14-hour RSI. In the near term, and according to the performance on the hourly chart, it appears that GBP/USD is trading within a sharp bearish channel. It also appears that the MACD on this period has recently completed a bearish crossover, indicating a bearish bias. Therefore, the bears will target short-term profits at around 1.2110 or lower at the 1.2082 support. On the other hand, the bulls - the bulls - will be looking to pounce on bounces at around 1.2168 or higher at 1.2197 resistance.
In the long term, and according to the performance on the daily chart, it appears that GBP/USD is trading within a descending channel. However, the daily MACD appears to have recently completed a bullish crossover, indicating a potential bounce. Therefore, the bulls will look to pounce on profits bounced around 1.2305 or higher at 1.2451 resistance. On the other hand, bears will look to extend current declines towards 1.1965 or lower to 1.1776 support.
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