GBP/USD Consolidates Thursday’s US-CPI Fueled Jump, as UK GDP Contracts

  • GBPUSD
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GBP/USD Analysis

Inflation pressures in the United States cooled in October, according to yesterday's CPI data. The Headline Consumer Price Index (CPI) eased to 7.7% year-over-year and the lowest level since January, while the core reading moderated to 6.3%, after September's highest print in forty years (6.6%).

This created a dovish shift in market expectations around the Fed's rate path, with CME's FedWatch Tool projecting a 50 basis points increase next month, while assigning the highest probability to a terminal rate of 5.00%, from 5.25% previous. [1]

The greenback slumped after the report, allowing GBP/USD to surge to its best day of the year. It closed above the 38.2% Fibonacci 2022 High/2022 record low plunge, which brings the key 1.2052-1.2130 region. This include the 50% Fibonacci and the 200Days EMA, but the Pound will need a fresh impetus taking them out.

Today however, GBP/USD loses steam, weighed down by the preliminary GDP data. The UK economy contracted by 0.2% q/q in the third quarter, in the first negative print since Q1 2021. UK Chancellor Hunt talked of a "tough road ahead", after the release. [2]

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Last week the Bank of England had raised rates by a historic 0.75% and had laid out a "very challenging outlook", forecasting a prolonged recession and inflation to peak at around 11% this quarter. [3]

Renewed pressure back to 1.1400 would not be surprising, but a break below the EMA200 and the upper border of the daily Ichimoku Cloud would likely need new catalyst. Below this level, bias will shift again on the downside, with next support located at 1.0950-22.

Markets will now turn to next week's slew of economic releases form the UK, including the latest inflation figures.

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 11 Nov 2022 https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

2

Retrieved 11 Nov 2022 https://twitter.com/hmtreasury/status/1590964669778624512/photo/1

3

Retrieved 29 Jan 2023 https://www.bankofengland.co.uk/monetary-policy-report/2022/november-2022

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