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Asset Watch
Thursday, August 17, 2023
The British pound reversed higher at the start of this week, as benefited from a higher-than-expected British wage figures of June. The data revealed a significant growth in wages of 8.2% against expectations of 7.3%. The increase in wage levels is regarded as a key contributor to sustaining elevated inflation. Moreover, recent data on the Consumer Price Index (CPI) of July showed a lower-than-expected decrease in the YoY core inflation levels (excluding energy and food items) as came at 6.9% against expectations of 6.8%. This suggests that the Bank of England’s policy is likely to remain tight until the end of Q3-23 and may extend into Q4. In other words, the BoE is likely to hike rates by 25 basis points in the September meeting and in the November meeting as well should inflation levels continue to remain notably elevated and distant from the 2% target.
The British Central Bank faces a dual challenge of managing elevated inflation levels while simultaneously nurturing positive economic growth. Increasing interest rates has the potential to impact economic performance by making borrowing for individuals and business more difficult. Notably, the interest rate for a five-year mortgage in the UK exceeded 6%. As a result, British monetary policymakers emphasize their vigilance over wage levels and inflation stemming from the services sector. Yet, the recent surge in energy prices would complicate the central bank mission as it will likely increase upward pressure on consumer prices, driven by higher commodity rates.
Chart source ADSS Platform
On July 27, the GBP/USD started a bearish trend creating lower highs with lower lows. This week the price fell to a multi-week low at 1.2616 then rallied after as some traders took profits. Currently, the pair develops a reversal pattern (double bottom) therefore, if the price breaks and remains above the neckline located at 1.2820 this may encourage traders to rally the GBP/USD towards 1.3047. That said, the resistance levels residing at 1.2866 and 1.2990 should be kept in focus.
On the other hand, a daily close below 1.2616 may entice traders to press towards 1.2383. However, the support level located at 1.2550 should be considered.
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