- With UK inflation rising more than anticipated in March, the pound sterling gains ground versus the US dollar, closing the gap at 1.2400.
- In March, the UK’s core CPI increased by 4.2% and the annual headline CPI increased by 3.2%.
- The US Dollar’s allure has increased as a result of Fed Powell’s aggressive interest rate guidance.
As the United Kingdom Office for National Statistics (ONS) revealed that the Consumer Price Index (CPI) for March climbed more than anticipated, the Pound Sterling (GBP) surges during Wednesday’s early New York session. Although inflation exceeded forecasts, it has decelerated since February, indicating that the Bank of England’s (BoE) increased interest rates may have lessened price pressure.
In the meantime, producer price inflation has also decreased, suggesting that factory gate prices for goods and services are beginning to decline. When business owners anticipate that demand will stay low, they typically lower their pricing.
“We’re closer to target than we were just a few months ago, so the inflation data has been encouraging,” BoE Monetary Policy Committee (MPC) member Megan Greene said following the release of the inflation data. However, she cautioned that changes in oil prices and supply shocks around the world could stall inflation’s progress.
Although Tuesday’s employment data revealed that the UK’s labor market is cooling, speculation that the BoE will start decreasing interest rates in November remains unabated due to a less-than-expected decrease in the inflation figures. According to the labor market data, the unemployment rate increased significantly from 3.9% in the previous release and 4.0% in the three months ending in February to 4.2% in the three months ending in February. In the three months leading up to February, there was a 156K decrease in the employment rate. above the 89K jobs that were lost in the quarter ending in January.
Daily digest market movers: Pound Sterling eyes a firm footing
- The United Kingdom ONS releases data on March inflation for March that is stronger than anticipated, which causes the pound sterling to rebound to 1.2460. Although it was slower than the previous figure of 3.4%, annual headline inflation increased by 3.2%, above predictions of 3.1%. Headline inflation increased by 0.6% month over month.
- The UK’s annual core CPI statistics, which excludes volatile food and energy costs, increased by 4.2%, which was somewhat less than the 4.1% forecast but still higher than the 4.5% estimate from February. The Bank of England’s preferred inflation indicator for determining interest rates is the core inflation statistics. The indicator indicates that price pressures are headed back toward the 2% target rate set by the BoE, despite the fact that it was slightly higher than anticipated.
- Global market mood is positive amid escalating tensions in the Middle East, and Federal Reserve Chair Jerome Powell’s hawkish interest rate forecast has been pushing riskier assets lower. The S&P 500 is off to a good start.
- Israel’s promise to avenge Iran’s attack has increased concerns about a potential escalation of tensions between the two countries. The United States declared that it is ready to sanction Iran.
- The value of the US dollar relative to six major currencies is gauged by the US Dollar Index (DXY), which is currently trading close to a new five-month high of 106.40.
- Given the robust job market and the gradual decline in inflation to the target rate of 2%, Fed Powell’s remarks on Tuesday suggest that holding interest rates higher for an extended period of time is necessary. As a result, the USD Index is predicted to continue rising.
Technical Analysis: Pound Sterling rebounds from 1.2400
The UK inflation report for March was released, and the pound sterling shows a stable foundation. There is robust buying in the GBP/USD pair close to the pivotal support level of 1.2400. The psychological resistance of 1.2500 is where the upside in the cable is perceived to be limited. This aligns with the daily time frame breakdown zone of the Head and Shoulders chart formation.
When the Cable falls below the 200-day Exponential Moving Average (EMA), which is currently trading at 1.2560, the long-term picture becomes bearish.
Relative Strength Index (RSI) for 14 periods moves into the negative 20.00–40.00 area, indicating a strong downward momentum.
