UK Inflation and US Debt Ceiling Uncertainty Weigh on GBP/USD Pair, Potential Reversal Awaited

My FX List
May 25, 2023

Short Position

  • Take Profit: 1.2450
  • Timeline: 1-2 days

Long Position

  • Buy Stop: 1.2420
  • Take Profit: 1.2520
  • Stop Loss: 1.2350

The GBP/USD pair has experienced a continuous decline following the release of the latest UK consumer price index (CPI) data. According to the Office for National Statistics (ONS), the headline CPI increased from 0.8% to 1.2% on a month-on-month basis. On a year-on-year basis, the CPI decreased from 10.1% to 8.7%. Meanwhile, core inflation showed an increase both on a year-on-year and month-on-month basis. It surged to 1.3% from the previous month and rose by 6.8% compared to the same period in 2022. These figures indicate a persistent rise in inflation within the country, raising the likelihood of the Bank of England implementing further interest rate hikes in the coming months.

Additionally, the GBP/USD pair faced downward pressure due to ongoing concerns surrounding the debt ceiling issue.The GBP/USD pair has also responded moderately to the recently released Federal Reserve (Fed) minutes. The report revealed a division among committee members regarding future actions, with some favouring further interest rate hikes and others advocating for a pause. Consequently, considering these factors, it is unlikely that the latest US GDP figures will have a significant impact on the pair. From a technical perspective, the GBP/USD pair has been in a notable downtrend over the past few days. Therefore, adhering to trend-following principles, it is probable that the pair will continue to decline, with the next key level of interest residing around the psychological level of 1.2200.

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