British Pound Under Pressure Following Hot Inflation Data – GBPUSD, EURGBP Setups

British Pound, GBPUSD, EURGBP - Talking Points

• UK inflation continues to climb, headline breaks through 10%
• GBPUSD holds above 1.2000 ahead of FOMC minutes
• EURGBP soars higher on GBP weakness, fails first test of 0.8450

The British Pound continues to push lower in the New York session as UK headline inflation breached double digits earlier this morning. Headline jumped to 10.1% (9.8% exp.) and core rose to 6.2% (5.9% est.) on a year-over-year basis. The relentless price pressures facing the UK have failed to subside, as the Bank of England (BoE) comes under further scrutiny to lower inflation.

BoE forecasts currently see inflation peaking at 13.3% later this year before beginning to come in. Market participants and economists have grown more bearish on the UK economy in recent weeks, as recession and stagflation fears continue to mount. These headwinds coupled with a Federal Reserve that remains focused on tighter policy present serious challenges for Sterling in the near-term.

UK Economic Calendar

Courtesy of DailyFX Economic Calendar

GBPUSD continues to tread water above the key 1.20 psychological level despite mounting challenges for the Pound. The cross currently sits at the bottom of its recent trading range, as the Greenback remains on the front foot into FOMC minutes later this afternoon. GBPUSD remains challenged by a Federal Reserve that continues to be insistent on tighter and possibly restrictive policy this year, which saw the Dollar gain sharply in H1 2022.

While the US Dollar has cooled its advance of late following soft CPI and PPI prints, the advance may gain traction yet again as G7 counterparts and global trade partners face the prospect of recession. The outlook for Sterling remains dark, and it may be a matter of when and not if support at 1.20 breaks. As price continues to fail at the 50-day simple moving average, a test of support lower around 1.1950 may be on the cards.

GBPUSD 1 Hour Chart

Chart created with TradingView

EURGBP was perky this morning on the back of the UK inflation data, rallying nearly 60 pips into resistance at 0.8450. While Europe is certainly not without its own issues, EURGBP could stand to benefit in the near-term as the UK economy looks set to bite the bullet of recession ahead its peers. With the UK consumer getting squeezed by soaring inflation and soft wage growth, it may be a slippery slide into what could be a dark and uncomfortable autumn season. Should UK data continue to disappoint, EURGBP could look to make another run at resistance around the 0.8472 area.

EURGBP 1 Hour Chart

Chart created with TradingView

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--- Written by Brendan Fagan

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