The GBPUSD rate was mixed on Wednesday despite another elevated inflation print.
GBPUSD – Daily Chart
The GBP v USD exchange rate has stalled at the critical resistance of 1.2440. It failed here in December and January, a key level for a breakout or reversal.
The likelihood of a reversal is likely favoured as the UK economy struggles.
The UK treasurer reacted to another inflation print above 10%- a sign that the Bank of England’s aggressive rate hikes are not working.
“When inflation is above 10%, it is destabilising for the economy. It is not a good place to be, ultimately it is dangerous if you leave it there,” Jeremy Hunt said during an event. He added that the tightness of the labour market was a “significant” factor in recent wage inflation.
“Inflation remains in double-digit figures at 10.1% – it’s deeply depressing, especially given the widespread expectation that it might fall below 10%. Any good news, such as falling costs at the petrol pump, is turned sour by soaring food prices, with inflation here nudging a shattering 20%. At 19.2% – up from 18.2% the month before – that’s the biggest annual increase in food prices for 45 years,” said analysts at Forbes Advisor.
GBPUSD Forecast
The City of London analysts are now expecting that UK interest rates could hit 5% before the end of the year. Analysts expected inflation to drop to 9.8% this month, but it came in at 10.1%. Stubborn inflation is weighing on the economy with the worst growth in the G7.
The latest data makes it almost sure that the BoE will increase its benchmark rate at next month’s meeting from 4.25% to 4.5%. Financial markets are now pricing in another two quarter-point increases after that.
The US dollar has bounced this week, and the pound could slump on the economic pressures. Inflation has slowed in the United States, but traders are not looking to add further bets on the British pound at this level.
Traders can look for a failure at this 1.244 level and play for a correction in the pound.
