Sterling pares losses after US CPI jumps

The British pound has taken investors for a ride today, as GBP/USD dropped sharply but has since recovered. In the North American session, GBP/USD is trading at 1.1856, down 0.28%. It has been a busy day on the economic calendar, with a host of UK releases and the US inflation report.

US inflation accelerates (again)

In the US, the long-sought-after inflation peak remains as elusive as ever. The June inflation report showed headline inflation rising to 9.1% YoY, up from 8.6% and above the 8.8% estimate. Core CPI ticked lower to 5.9%, down from 6.0%. Still, this was higher than the forecast of 5.7%. With inflation remaining at high levels, the path is clear for the Fed to fire at will in order to curb inflation. Just a few days ago, CME’s FedWatch pegged a 75bp hike at 93%, with a 7% chance of a 100bp move. The June inflation release has dramatically changed the FedWatch assessment, with a 53.6% of a 75bp move and 46.3% likelihood of a 100bp hike.

The British pound took a tumble immediately after the US inflation release, falling 0.76%. The pound has managed to claw back most of these losses, but the risk of the US dollar moving higher remains elevated, as a massive 100bp increase has become a very real possibility at the Fed meeting in late July.

Overshadowed by the dramatic US inflation report, UK indicators enjoyed a good day. GDP for May rose 0.5% MoM, bouncing back from a -0.2% reading in April and beating the estimate of 0.1%. Industrial Production and Manufacturing Production both ended a 3-month skid with monthly gains of 1.4% and 0.9%, respectively. Still, the bigger picture for the UK economy is not a rosy one, as a Bloomberg poll of economists indicated a 45% likelihood of the UK economy tipping into a recession in the next 12 months.

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GBP/USD Technical

  • GBP/USD tested support at 1.1876 earlier in the North American session. Below, there is support at 1.1736
  •  GBP/USD faces resistance at 1.2025 and 1.2175

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.
Kenny Fisher

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