The BoE rate hike is out of the way, and Europe is now pretty much in holiday mode. Yet, in the U.K., the leadership contest and talk about a change to the BoE’s mandate continue to make headlines. BoE head Bailey delivered not just a 50 basis point hike, but also a very gloomy picture of the economic outlook, which doesn’t quite fit with the official narrative of “sunlit uplands” post-Brexit. BoE deputy governor Dave Ramsden told Reuters earlier that the Bank of England may raise interest rates further from its current 14-year high (at 1.75%) to further combat inflation.
Cable is into its third week above the 1.2000 level, while this week the GBPUSD pair has moved within a range of 1.2060 – 1.2140, ahead of the preliminary estimate of Q2 GDP, which is expected to contract at -0.2% qoq after the lowest annual growth of 0.8% in the first quarter, while the monthly growth rate is expected to contract at -1.2% monthly from +0.5% in the previous month.
However, another key piece, before the UK GDP figure, is the US July CPI inflation report today, which is expected to slow to 0.2% monthly from 1.3% and 8.7% annually from 9.1%. If it comes in lower it may help mitigate the Fed’s aggressive stance on raising interest rates. On the other hand, if the number is higher than expected this, combined with strong non-farm employment data last week, it may encourage the Fed to continue its aggressive rate hike path. That means the US Dollar may strengthen again.
In the technical view GBPUSD in the H4 timeframe is now stuck between the MA50 and MA200 lines with a descending widening wedge trend where the MACD and RSI are approaching the neutral zone. There is the first resistance at the MA50 line at 1.2140 and the next resistance at the psychological resistance 1.2200. Conversely, if the price falls below the MA200 there is a next support at the round 1.2000, the low zone of the month. August and the next support is at 1.1920.
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