UK Inflation Report Cools Down Pound Sterling
2022.05.19 11:51
Two months ago, the Bank of England predicted that inflation would reach its peak in April. Yesterday’s report proved the forecast and unveiled a jump to the 40-year high of 9.0% compared to 7.0% in the previous period.
After hitting the peak, the UK inflation should have started falling. However, the regulator foresaw the highest level of just 7.2%, whereas now inflation is well above this reading. In one month, the indicator soared, thus pointing to the acceleration process.
It means that the consumer price growth will hardly slacken in the near future. A faster rise may lead to catastrophic consequences. In other words, there is no wonder that the pound sterling began losing value just after the publication of the report.
UK CPI YOY.
The UK inflation figures allowed the US dollar to resume its rally. That is why today, the greenback is expected to climb gradually. What is more, the US unemployment claims data will hardly affect the market situation. The number of first-time claims may increase by 4,000, whereas the number of continuing claims is expected to inch up by 3 thousand.
US continuing claims.
After a short-lived stagnation within the resistance level of 1.2500, the pound/dollar pair dropped from it. As a result, the volume of short positions surged, thus enabling the greenback to recover after the recent decline.
The RSI technical indicator downwardly crossed the overbought line on the four-hour chart when the pair started falling. This signal proved sellers’ intention to open more short orders. At the moment, the indicator is hovering near the mid 50 line.
In the same time frame, the Alligator indicator displays an initial signal of the corrective movement completion. In other words, the red and green moving averages intersect. On the daily chart, the indicator is still pointing to the downtrend. The moving averages are heading downwards.
Outlook
The next jump in the volume of short positions is likely to occur if the price settles below 1.2300 on the four-hour chart. Against the backdrop, the pound sterling may drop deeper to the local low of 1.2155 recorded on May 13.
The alternative scenario will become possible if the price returns to the resistance mentioned above level. In this case, the British currency will have a second chance to prolong its upward correction.
In terms of the complex indicator analysis, technical indicators are signaling sell opportunities in the short-term and intraday periods due to a drop from 1.2500. In the mid-term period, the indicator provides sell signals since the downtrend is still in force.
GBP/USD price chart.
