- GBP/USD falls almost 0.05% amid risk aversion momentum as US dollar weakens.
- Prices paid by producers in the US eased, while jobless claims rose for the second week in a row.
- GBP/USD Price Analysis: Pulled back from a descending channel trendline, with an eye on a break below 1.2200.
The GBP/USD is off weekly highs around 1.2276, near the upper trend line of a descending channel, amid upbeat sentiment spurred by a cooler-than-expected US inflation report, now siding with producers. Additionally, the US labor market is showing signs of easing, weighing on the USD, underpinned by a tougher-than-expected Federal Reserve.
That said, GBP/USD is trading at 1.2204, down nearly 0.05%. Earlier in the day, the pound retraced some of Wednesday’s gains, reaching a daily low of 1.2182, before hitting a daily high of 1.2249. However, once the dust has settled, the cable winds around current price levels.
The US Department of Labor released another piece of the inflation puzzle. The Producer Price Index (PPI), also known as prices paid by producers, rose 9.8% year-on-year, below estimates of 10.4% and June’s reading. For its part, the so-called core PPI, which excludes volatile items, did the same, increasing by 7.6%, unchanged from forecasts, but 0.3% less than the previous month.
The data suggests that inflationary pressures in the wholesale sector have started to ease. This would moderate the pace of prices paid by consumers in the coming months. In addition, the survey added that there are signs that supply chain conditions are improving.
At the same time, US initial jobless claims for the week ending August 6 rose by 262,000 less than forecast, but rose for the second week in a row.
On the UK side, Bank of England (BoE) Chief Economist Huw Pill stated on Wednesday that the bank would have to double the 2% inflation target. He added that “higher short-term rates” could also mean some “slowing of the economy.”
Given that the Bank of England has raised rates six times since December 2021, Pill added that the effects of the measures taken would be felt by the end of 2023.
Earlier in the week, BoE Deputy Governor Dave Ramsden backed the BoE’s plan to sell its Gilt stock, even if an economic slowdown “forces” the bank to cut rates.
Dave Ramsden said he supports the need to continue raising rates, adding that due to the “extraordinary period where a lot of things are changing” he will not be making any predictions about where the bank rate will end up.
What should we pay attention to?
UK GDP, industrial production and trade balance will be released on Friday. In the US, consumer sentiment from the University of Michigan, along with inflation expectations.
GBP/USD Price Analysis: Technical Outlook
The GBP/USD exchange rate is near the upper two-month trend line of a descending channel, which was broken briefly yesterday. However, the false breakout is a sign of weakness from the buyers, with the spot price falling within the confines of the aforementioned channel, opening the door for selling pressure.
To the upside, the crucial top level to break GBP/USD would be 1.2300. Once breached, it could send the pair towards the 100 day EMA at 1.2432. On the other hand, the break of 1.2200 would pave the way towards the 20-day EMA at 1.2085.
Technical levels
Source: Fx Street
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