(MENAFN- Daily Forex)
GBP/USD broke through the psychological resistance level of 1.3000, extending gains to 1.3044 and remaining close to its highest level in a year. Obviously, this rise followed the UK's June inflation rate holding at 2%, contrary to expectations of a slowdown to 1.9%. Also, service inflation failed to decrease, remaining at 5.7%, above the bank of England's forecast of 5.1%.
Overall, bets on a Bank of England rate cut in August fell to around 33% from around 49% before the CPI release. Last week, BoE Chief Economist Hugh Bell confirmed that service price inflation and wage growth remain strong. Now, traders are awaiting further data including wage growth and retail sales due this week to assess the timing of the first cut in borrowing costs.
On another note, the yield on the British 10-year government bond rose after the CPI data. According to trading platforms, the yield on the British 10-year government bond rose to 4.08% from a three-week low on Tuesday, as traders reduced their bets on a Bank of England rate cut in August after higher-than-expected inflation data in Britain. Furthermore, the consumer price index remained at the Bank of England's target of 2% for the second month in a row in June, but inflation in the services sector remained high at 5.7%. Likewise, economists had expected a decline to 1.9%, while the Bank of England expected services inflation to reach 5.1%. The results raised concerns that inflation, although currently at the target level, may not stay there, which could delay the Bank of England's plans to cut interest rates.
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As a result, traders reduced the probability of a rate cut on August 1 to around 30%, down from more than 40% the previous day.
In the United States, the Federal Reserve is expected to start cutting interest rates in September, with two more cuts expected before the end of the year. Recently, Fed Chairman Jerome Powell has indicated that recent data has increased confidence that inflation will return to target and suggested that the central bank should cut rates before inflation reaches 2%.
On the stock trading platforms front, British stocks fall for a third session after inflation printing. According to online trading platforms, the FTSE 100 index fell slightly on Wednesday, recording a third consecutive session of losses as traders revised their expectations for an August interest rate cut by the Bank of England. Clearly, the revision came on the heels of UK inflation data that beat economists' expectations. Also, the consumer price index (CPI) held steady at the Bank of England's 2% target for a second month in June, but highlighted ongoing price pressures in the services sector, which held steady at 5.7%. Again, Economists had expected the headline rate to fall to 1.9%, while the Bank of England had forecast services inflation to reach 5.1%. Decisively, these figures suggest that although inflation is currently at target, it may not stay there, which could delay the Bank of England's plans to cut interest rates. As a result, traders have reduced the probability of a rate cut on August 1 to around 30%, down from more than 40% the day before.
In corporate news, copper miner Antofagasta fell more than 2.5% after forecasting annual production at the lower end of its guidance.
Technical forecasts for the GPB/USD pair today:
As we mentioned before, the GBP/USD exchange rate broke the 1.3000 psychological resistance level, confirming the bulls' strong control over the trend. Based on the performance on the daily chart above, technical indicators will move towards strong overbought levels if bulls move towards the 1.3065 and 1.3120 resistance levels respectively. Today's GBP/USD gains will be influenced by the announcement of UK jobs and wages figures, followed by the announcement of the US weekly jobless claims number. On the other hand, and in the same time frame, moving towards support 1.2880 threatens to rebound to the current high.
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