- The pound tries to consolidate the losses in the area of 1.1200.
- Investors are dampening hopes of an aggressive BOE tightening despite good CPI data.
- GBP/USD decline could extend below ING 1.10.
GBP appears to be attempting to establish a bottom at 1.1185 following its reversal from highs of 1.1445 earlier this week. The pair fell for the second day in a row on Wednesday, weighed down by negative inflation data and political uncertainty in the UK.
British pound continues to fall after CPI data
Consumer inflation accelerated beyond expectations in September, with the annual CPI rising to 10.1% from 9.9% the previous month, versus market expectations for a 10.0% reading. However, the market has dampened hopes of an aggressive rate hike from the Bank of England to fight inflation due to looming recessionary risks, which has weighed on demand for sterling.
Furthermore, the turmoil in the UK government, with the ruling Conservative party plotting to replace newly elected Prime Minister Liz Truss after her tax cut fiasco, is adding negative pressure on the pair.
At the other extreme, a more sour market mood has favored the safe-haven dollar, which rose on Wednesday, buoyed by hopes of aggressive monetary tightening by the Fed and rising US bond yields.
GBP/USD: Return below 1.10 expected — ING
ING FX analysts see the pair depreciating further, likely below 1.1000: “We continue to struggle to see a return to 1.15+ levels as a combination of political instability, deeper recession risks and lower rate hikes by of BOE on the path of fiscal tightening – coupled with a strong dollar – may more than offset the benefits of calmer debt concerns… It is too early to rule out a return to below 1.10 levels.”
Technical levels to watch
Source: Fx Street
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