GBP/USD Daily Forecast – Sterling Declines on Inflation Miss

After briefly piercing to a fresh eight week high, GBP/USD has fallen under pressure in early trading on Wednesday as UK inflation data came in softer than expected.
Jignesh Davda

GBP/USD Pares Recent Gains After CPI Miss

GBP/USD once again traded above the important 1.2500 level in early trading but failed to sustain above the level. Data out of the UK has caused a bit of a sell off at the European open and GBP/USD has given up yesterday’s gain as a result.

Annual inflation data in the United Kingdom showed price pressures weakening in the year to August. The consumer price index was reported to rise 1.7% annually, significantly lower from the prior reading of 2.1% and below the analyst estimate of 1.8%. Core CPI came in at 1.5%, well short of the expected 1.8%.

The Office for National Statistics reported increases in airfares to be the largest contributor to upward price pressure. Meanwhile, price decreases in a range of recreational and cultural goods and services weighed on the index.

Juncker Says a No-Deal Brexit Remains on the Table

European Commission President Jean-Claude Juncker said on Wednesday that the threat of a no-deal Brexit is very real. Juncker met with UK Prime Minister Boris Johnson earlier this week to have preliminary Brexit discussions ahead of the EU summit next month.

A law was passed in the UK earlier this month that prevents an exit without a deal. This did not seem to stop Johnson who stuck with his script, telling Juncker the UK would leave on October 31 even without a deal.

Juncker is urging the British PM to come up with alternatives to the Irish backstop which is the main point both parties can’t seem to agree on.

Later today, the Federal Reserve will meet and they are expected to cut rates by a quarter basis point. GBP/USD is likely to see a volatile reaction as a result of the meeting.

Technical Analysis

GBP/USD has not been rejected from overhead resistance near 1.2500 twice. It is a critical resistance area. Not only does it contain the psychological 1.2500 handle, the 20-week and 100-day moving averages are also in play.

GBPUSD 4-Hour Chart

Ahead of the Fed meeting, I expect support at 1.2426 to hold buyers. It was an important resistance level yesterday, and after crossing it, the exchange rate propelled to multi-week highs.

To the upside, resistance for the session falls at 1.2486.

Bottom Line

  • GBP/USD is under a bit of pressure after UK inflation data fell short of expectations.
  • I expect the pair will hold within yesterday’s range ahead of the Fed meeting.
  • The Fed is expected to cut rates by a quarter basis point today.
Don't miss a thing!
Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Latest Articles

See All

Expand Your Knowledge

See All
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.