POUND STERLING TALKING POINTS
- Spotlight on UK CPI!
- BoE may move to a 50bps hike in August.
- Cable remains under pressure despite short-term relief rally.
GBP/USD FUNDAMENTAL BACKDROP
Next week’s economic calendar is rife with high impact events from both the UK and U.S. (see economic calendar below) with UK inflation[1] being the main focus for the pound[2]. Both core and headline inflation figures have yet to take a step back since September last year with expectations looking at another increase. This should increase hawkish[3] pressure on the Bank of England (BoE)[4] to increase interest rates[5] by 50bps in August – which they have put forward as an option in during their last rate announcement.
Money markets have been pricing this in for some time now but the central bank will need to take into consideration rising unemployment (albeit marginal) and a slowing UK economy. Inflation is unlikely to abate from monetary policy as we are well aware of the supply issues stemming from the Russia/Ukraine war.
Source: DailyFX Economic Calendar[7]
TECHNICAL ANALYSIS
Chart prepared by Warren Venketas[9], IG
Daily GBP[10]/USD[11] price action[12] shows the recovery post-FOMC[13] and BoE but has since given back some gains on Friday. Bulls are finding resistance at the 20-day EMA[14] level (purple) and as we head into Wednesdays CPI read I don’t see much in the way of significant price moves for cable. I expect prices to hover between the 1.2200 and 1.2400 levels respectively with my medium/long-term outlook in favor of the U.S. dollar[15]
