GBP/USD Forex Technical Analysis –Rising as Dollar Eases Ahead of US Producer Inflation

The British Pound is inching higher against the U.S. Dollar on Wednesday despite a rise in core prices, which is raising concerns that inflation has become embedded into the U.K. economy. Today’s price action reflects a dip in the U.S. Dollar and stable U.S. Treasury yields after both rallied sharply higher the previous session on the back of a scorching U.S. consumer inflation report.

At 08:36 GMT, the GBP/USD is trading 1.15478, up 0.0055 or +0.48%. On Tuesday, the Invesco CurrencyShares British Pound Sterling Trust ETF (FXB) settled at $110.80, down $1.41 or -1.26%.

UK Headline Inflation Eases, Core Inflation Ticks Higher

Britain’s rate of inflation eased in August after registering a double digit increase for the first time in more than four decades last month.

Consumer price index (CPI) inflation unexpectedly fell to 9.9% in the 12 months to August from 10.1% the month before, according to the Office for National Statistics (ONS) on Wednesday.

However, the ONS said core prices, which exclude volatile items like energy and food, ticked up to 6.3% from 6.2%, suggesting price rises are firmly embedded across the economy.

Fuel prices were the largest contributor to the downward move while food costs were the biggest driver of inflation last month.

More Pain Expected for Sterling

Although we’re seeing an uptick on Wednesday, the expectation is that the Bank of England would raise rates as aggressively as the Federal Reserve is forecast because Tuesday’s U.S. CPI report showed inflation was still running hot.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. However, momentum is trending higher. A trade through 1.1738 will change the main trend to up. A move through 1.1406 will signal a resumption of the downtrend.

The minor trend is up. This is controlling the upside momentum.

The short-term range is 1.1406 to 1.1738. The GBP/USD is trading on the weak side of its 50% level at 1.1572, making it resistance.

A second minor range is 1.1900 to 1.1406. Its retracement zone at 1.1653 to 1.1711 is also resistance. It essentially stopped the rally on Tuesday.

Daily Swing Chart Technical Forecast

Trader reaction to 1.1493 is likely to determine the direction of the GBP/USD on Wednesday.

Bullish Scenario

A sustained move over 1.1493 will indicate the presence of buyers. The first upside target is 1.1572. Overtaking this level will indicate the buying is getting stronger with 1.1653 – 1.1711 the next likely target area.

Bearish Scenario

A sustained move under 1.1493 will signal the presence of sellers. Taking out the intraday low at 1.1480 will indicate the selling pressure is getting stronger. This could trigger a break into the support cluster at 1.1412 to 1.1406. The latter is a potential trigger point for an acceleration to the downside.

Side Notes

Traders should watch for heightened volatility at 12:30 GMT, following the release of the U.S. Producer Price Index (PPI) report.

Headline PPI is expected to have fallen 0.1% in August and Core PPI is expected to have risen 0.3%. Higher-than-expected readings could drive the GBP/USD lower, but we don’t expect to see the same volatility as yesterday when U.S. consumer inflation came in higher-than-forecast.