Energy sources support extreme UK inflation, highest since 1981

ANALYSIS OF THE POUND STERLING AND TALKING POINTS

  • UK inflation soars after energy inputs continue to hurt consumers.
  • Chancellor Jeremy Hunt Autumn’s statement will be finalized tomorrow.
  • Book falls after the CPI.

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GBP/USD FUNDAMENTAL CONTEXT

Great Britain inflation This morning’s report beat estimates on nearly every metric (see economic calendar below) with the stock reading posting decade highs. According to the Office for National Statistics (ONS), the main contributors to the final inflation statistics are electricity, gas and food prices despite the energy price guarantee. With energy and food costs impacting essential goods, low- and middle-income households will be negatively impacted due to a greater portion of their spending on essential goods.

GBP/USD ECONOMIC CALENDAR

Source: DailyFX Economic Calendar

Shortly after the CPI report, UK Chancellor Hunt issued a statement stressing the need for tough decisions to quell inflationary pressures and help Bank of England (BoE) in their assignment. Markets will know to look forward to Thursday’s fall statement given the decline in the UK labor market due to illness and immigration. With the winter months and recession fears looming, the UK government and the BoE have a difficult task ahead.

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Looking at current money market prices for the December meeting below, 59bps is shown, which leaves room for either a 50bps Where 75 basis points interest rate optional hike. I tend to favor a 50bps increase under the current circumstances, but there are still more data points ahead of the Dec. 15 meeting.

BOE INTEREST RATES PROBABILITIES

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Source: Refinitiv

TECHNICAL ANALYSIS

GBP/USD DAILY CHART

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Chart prepared by Warren VenketasGI

Daily GBP/USD price action saw a rejection at 1.2000 psychological care yesterday after US PPI and concerns around Russia potentially bombing Poland (NATO member). It has since presented itself as a long top wick exposing further downward movement. The reaction to the UK CPI release was surprisingly negative for the Pound, but despite a weaker greenback, it should more accurately reflect the European markets coming online.

Key resistance levels:

Main support levels:

Introduction to Technical Analysis

Candlestick patterns

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MIXED GI CUSTOMER FEELING

IG Customer Sentiment Data (IGCS) shows that retail traders are currently SHORT on GBP/USDwith 54% of traders currently holding long positions (as of today). At DailyFX, we generally take a contrarian view of crowd sentiment, but due to recent changes in long and short positioning, we come to a cautious bias.

Contact and follow Warrenon Twitter:@Wenketas

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