GBP/USD higher despite rise in inflation, BoE decision looms

The British pound is in positive territory on Tuesday. In the European session, GBP/USD is trading at 1.2277, up 0.50%.

UK inflation accelerates

For Bank of England policy makers, the “how not to start the day” manual likely included inflation climbing higher. That was the bad news earlier today, as UK headline CPI rose to 10.4% in February, reversing the deceleration trend in recent months. The reading was up from 10.1% in January and above the consensus estimate of 9.8%. The core rate climbed to 6.2% in February, up from 5.8% prior which was also the estimate. The usual suspects were at play, with the food and energy prices driving the increase in inflation.

The inflation print will complicate matters for the BoE, which has hiked rates to 4.0% in a bid to contain inflation. Higher inflation will require further rate hikes, but the fallout from the banking crisis, which has roiled the financial markets, means that central banks will have to tread carefully with rate moves. The BoE is almost certain to deliver a 25-bp hike at the policy meeting on Thursday.

In the US, the response to the banking crisis has been swift and decisive, which has helped soothe market jitters after last week’s panic. Over the weekend, the Federal Reserve and five other major central banks announced coordinated action to bolster liquidity, and Treasury Secretary Yellen said that the bank system was stabilizing and she would intervene if necessary in order to protect depositors of small banks. The Federal Reserve announces its rate decision later today and after massive shifts in market pricing lately, a 25-bp increase is almost a certainty. What will be of interest to investors is whether the Fed follows the stance of the ECB and avoid any direct signals about future rate moves.


GBP/USD Technical

  • GBP/USD is testing resistance at 1.2253. The next resistance line is 1.2324
  • There is support at 1.2132 and 1.2061

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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, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.