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GBP/USD Breaking News: BOE Rate Hike Almost Certain On Strong CPI Data

GBP/USD Breaking News: BOE Rate Hike Almost Certain On Strong CPI Data

Warren Venketas, Analyst

GBP/USD ANALYSIS

  • UK Inflation: 4.2%, Est. 3.9%.
  • December rate hike highly likely.
  • GBP/USD upside reversal may continue on strong fundamental data.
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UK INFLATION BEATS ESTIMATES BOLSTERING DECEMBER RATE HIKE POSSIBILTY

Sterling popped against the U.S. Dollar after the UK inflation print beat estimates (see calendar below). This may well be the final nail in the coffin to confirm settle the rate hike debate and allow for Bank of England (BoE) governor Bailey to shake off the ‘unreliable boyfriend’ tag.

UK inflation data October

Source: DailyFX economic calendar

PRE-INFLATION FUNDAMENTAL BACKDROP

Yesterday, UK jobs data provided (calendar below) the BOE with a signal to confirm the overall inflation picture as previously eluded to by the central banks Governor Andrew Bailey. The positive jobs data also quelled fears around a slowing economy towards the close of the furlough scheme; a major factor for the BoE maintain rates in its last meeting.

uk JOBS DATA aUGUST AND SEPTEMBER

Source: DailyFX economic calendar

Markets are currently pricing in a 15bps hike (see graphic below) in December with the last piece to the puzzle (inflation) to cement this position. Thus far the BOE has four main components to tick off their rate hike list in the form of:

  • Supply chain constraints
  • Energy crisis
  • Strong jobs data
  • Rising inflation
BANK OF ENGLAND RATE HIKE PROBABILITY

Source: Refinitiv

GBP/USD TECHNICAL ANALYSIS

GBP/USD Daily chart:

gbp/usd DAILY CHART

Chart prepared by Warren Venketas, IG

GBP/USD continues to move to the upside after pushing of channel resistance as mentioned in last week’s Fintwit analysis. Pound strength comes in the midst of a dollar rally as bullish U.S. fundamental data simultaneously gives impetus to the greenback. Yesterday’s confirmed candle close above the September swing low at 1.3412 could bring into consideration the 1.3500 psychological resistance handle.

Bullish divergence on the Relative Strength Index (RSI) may also be unfolding at this point as the oscillator points to slowing downside momentum – although still very much bearish.

Key resistance levels:

Key support levels:

  • 1.3412 – September swing low
  • 1.3300/channel support

MIXED IG CLIENT SENTIMENT DATA

IG Client Sentiment Data (IGCS) shows retail traders are currently noticeably long on GBP/USD, with 71% of traders currently holding short positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment however, the change in shorts vs longs result in a short-term mixed disposition.

Contact and follow Warren on Twitter: @WVenketas

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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