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Asset Watch
Wednesday, June 21, 2023
• Higher than expected UK CPI numbers may lead BoE to tighter interest rates
• GBP/USD Price could fall further, key technical levels to consider
The UK CPI numbers of May released earlier today at 8.7% came in higher than expected of 8.4% and the core CPI (excluding food and energy) has followed suit and come in higher than expected rising from 6.8% in April to 7.1% in May and printing its highest levels since 1992. The hot inflation read of May has come on the back of higher costs in healthcare, and communications.
Investors expect that the Bank of England to continue combating high inflation levels and hike interest rates by 25 bp this week, taking the main rate from 4.5% to 4.75. Additionally, markets expect further rate hikes in the coming months (around 100 bp until next year). It should be noted that the cost of two-year loans has risen significantly in the UK reaching 6% levels, and this could affect the demand for mortgages, increasing the odds for a lower growth rate and a higher probability of a recession in the UK.
Chart source: TradingView
On the 16th of this June, cable has rallied to a muti-month high at 1.2848. The price retreated after, as some traders took profits and exited the market and since then, the pair has lost around 1% of its value.
Currently, the price moves with in the trading zone 1.2775 – 1.2616, and it may be on its way for a test of the low end of the zone. On the other hand, a daily close above the high end of the zone may encourage some traders to rally the price towards 1.3048. That said, the resistance levels residing at 1.2866 and 1.2990 should be kept in focus.
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