Today's inflation data from the UK turned out to be slightly softer than expected and confirmed the broader downward trend. As a result, the market is already pricing in 71bp cuts this year, compared to 67bp before the data was released. The UK Prime Minister stressed that the lower readings give the Bank of England more room and open the door to cuts. The lower U.K. data were mostly contributed to hotels and restaurant prices, as well as food and beverages. As a result, the popular GBPUSD 'cable' is trading 0.21% lower today.
- UK CPI (y/y) February: 3.4% (expected 3.5%; last seen at 4.0%)
- CPI (M/M) February: 0.6% (expected 0.7%; last -0.6%)
- CPI Core (y/y) February: 4.5% (expected 4.6%; last 5.1%)
As we will learn the Fed decision at 7 PM GMT today, and follow Jerome Powell's conference half an hour later, volatility on the pair may increase. Even more so if we add the fact, tomorrow's Bank of England decision and conference, at 12 AM GMT. The market expects the bank to keep rates at 5.25%, but recent better inflation readings may give the BoE reasons for a more dovish narrative. On the other hand, potentially hawkish comments from Jerome Powell, following higher-than-forecast CPI data for January and February, could strengthen the dollar and lead to declines on GBPUSD. In addition, the pair is being weighed down today by the strengthening dollar index, which is gaining more than 0.3% ahead of the Fed meeting.
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Looking at the chart, we can see that from 2022, each time a 'bearish' crossover of the averages on the MACD has indicated a broader and usually longer downward reaction on the pair. If such a scenario were to repeat itself, we could see a retest of the support between the SMA200 (red line), and the 23.6 Fibonacci retracement of the 2022 upward wave at the level between 1.248 and 1.254. Falling below this level may lead to test of the 1.20 zone, where we can see also local lows from the fall of the 2023. Currently the pair is on supports from SMA50 and SMA50 averages (orange and black line).
Source: xStation5
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