Sun, June 16, 2024

GBP/USD Soars to 1.2720 on Hotter UK CPI Data

EUR to GBP Live Trading Room

Quick Look:

  • GBP/USD Rally: Driven by higher-than-expected UK CPI inflation, trading near 1.2720.
  • FOMC Minutes: Fed maintains restrictive policy, but markets doubt quick inflation control.
  • UK Election Impact: Political uncertainty from PM Sunak’s election announcement affects GBP.

On Wednesday, the Federal Open Market Committee (FOMC) minutes revealed ongoing concerns about stubborn inflation. Fed Chair Jerome Powell reiterated the need for patience with the current restrictive policy to bring inflation under control. Despite these hawkish undertones, the market remains sceptical about the Fed’s ability to reduce inflation to its 2% target quickly. According to the CME FedWatch Tool, investors are assigning nearly a 60% probability to a rate cut in September, reflecting a cautious outlook on the US economic recovery.

The GBP/USD pair experienced a slight pullback from its early gains, influenced by the hesitant FOMC outlook and an announcement by UK Prime Minister Rishi Sunak about an upcoming election on July 4th. This announcement injected political uncertainty, which may dampen investor appetite for sterling in the near term.

UK Service Sector Inflation Hits 5.9% in May

Recent PMI data showed a mixed picture for the UK economy. The Composite PMI dropped from 54.1 in April to 52.8 in May, indicating slower growth in the service sector, although the manufacturing sector returned to growth. Additionally, service sector inflation in May was reported at 5.9%, above the expected 5.5%, while headline CPI stood at 2.3%. These figures have pushed expectations for a rate cut from the Bank of England to August, as inflationary pressures remain robust.

Technically, GBP/USD remains above the 1.27 level, with the Relative Strength Index (RSI) indicating bullish momentum as it stays above 50. Key resistance levels to watch are 1.2750, 1.28, and the 2024 high of 1.2890. On the downside, support levels are 1.27, 1.2630 (corresponding to the 100-day Simple Moving Average), and 1.2545.

US Dollar Weakens on Mixed Economic Signals

The DAX index is consolidating below its record high. It is buoyed by optimism surrounding Nvidia and stronger-than-expected business activity in Germany and the broader Eurozone. The German Composite PMI rose from 50.6 in April to 52.2 in May, driven by stronger service sector growth and a smaller manufacturing contraction. Similarly, the Eurozone Composite PMI increased from 51.7 to 52.3, reflecting robust business activity.

Nvidia’s announcement of a revenue forecast significantly above estimates, a stock split, and a 150% increase in its quarterly dividend have driven its share price up by 6.5% in premarket trading. This optimism has supported broader market sentiment. Moreover, European Central Bank (ECB) President Christine Lagarde has indicated the possibility of a rate cut in June. This added another layer of complexity to the economic landscape.

DAX Technicals: Support at 18635, Resistance at 19000

The DAX is currently consolidating above the 18635 level, with resistance at the psychological 19000 mark and the all-time high of 18928. Support levels are identified at 18635 and 18250, aligning with the mid-April high and the 50-day SMA.

As markets digest these mixed signals from economic data and central bank communications, the upcoming days will be crucial in determining the next moves for the GBP/USD pair and the DAX index. Investors will closely monitor economic indicators and central bank guidance for further clarity.

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