British Pound Under Pressure on Hot Inflation Data – GBPUSD, EURGBP

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    British Pound, GBPUSD, EURGBP – topics of conversation

    • UK Inflation Continues to Rise, Heading Above 10%
    • GBPUSD holding above 1.2000 ahead FOMC minutes
    • EURGBP soars higher GBP weakness, fails first test 0.8450

    The British pound continued to fall in the New York session as headline inflation in the UK crossed double digits this morning. The headline jumped to 10.1% (9.8% expected) and the main rose to 6.2% (5.9% forecast) on a year-over-year basis. The relentless price pressures facing the UK have not eased as the Bank of England (BoE) comes under further scrutiny to reduce inflation.

    Bank of England forecasts currently show inflation peaking at 13.3% at the end of this year before taking off. Market participants and economists have become more bearish on the UK economy in recent weeks as fears of recession and stagflation continue to mount. These headwinds, coupled with the Federal Reserve remaining focused on tighter policy, pose serious challenges for sterling in the near term.

    UK Economic Calendar

    Courtesy of the DailyFX Economic Calendar

    GBPUSD continues to move above the key psychological level of 1.20, despite the increasing challenges for the pound. The cross is currently at the bottom of its recent trading range, while the greenback remains on the front foot at the FOMC minutes later in the afternoon. GBPUSD continues to challenge the Federal Reserve, which continues to push for tighter and possibly more restrictive policy this year, leading to a sharp rally in the dollar in the first half of 2022.

    While US dollar has cooled its progress recently following soft CPI and PPI prints, progress could pick up again as G7 and global trading partners face the prospect of a recession. The outlook for Sterling remains murky and it may be a matter of when, not if, the 1.20 support is broken. As the price continues to lower towards the 50-day simple moving average, a test of support below around 1.1950 may be in store.

    GBPUSD 1 hour chart

    British Pound Under Pressure on Hot Inflation Data - GBPUSD, EURGBP

    The chart is created using TradingView

    EURGBP was buoyant this morning on the back of UK inflation data, rising almost 60 points to resistance at 0.8450. While Europe is certainly not without its own challenges, EURGBP could benefit in the near term as the UK economy looks poised to bite the recession bullet ahead of its peers. With the UK consumer under pressure from soaring inflation and soft wage growth, it could be a slippery slope into a dark and dreary autumn season. If the UK data continues to disappoint, EURGBP could again pass through resistance near the 0.8472 area.

    EURGBP in 1 hour

    British Pound Under Pressure on Hot Inflation Data - GBPUSD, EURGBP

    The chart is created using TradingView

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