Market Analysis

Pound Sterling rises as attention is drawn to US-UK inflation

Amos Simanungkalit · 12 Aug 202412.4K Views

The Pound Sterling (GBP) is making gains against most major currencies in Monday’s London session, with the exception of the Australian Dollar (AUD) and the New Zealand Dollar (NZD). The British currency has strengthened as investors await key economic reports from the United Kingdom (UK), including the Employment data for the three months ending June and the Consumer Price Index (CPI) data for July, which are scheduled for release on Tuesday and Wednesday, respectively.

The UK Employment report is anticipated to reveal an increase in the ILO Unemployment Rate to 4.5% from the previous 4.4%. Investors are also keen on the Average Earnings Excluding Bonuses, a critical gauge of wage growth that has been a major contributor to high inflation in the service sector. This measure is forecasted to have slowed significantly to 4.6% from the prior 5.7%. A notable drop in wage growth could lead to expectations of future interest rate cuts by the Bank of England (BoE).

Despite the anticipated decline in UK wage growth, BoE Monetary Policy Committee (MPC) member Catherine Mann expressed concerns about persistent inflationary pressures. In a Financial Times podcast during Monday’s Asian trading hours, Mann noted, “Goods and services prices are expected to rise again, and wage pressures in the economy could take years to dissipate.” She remained cautious about upside risks to inflation, even with annual headline inflation returning to the bank’s 2% target.

Technical Analysis: Pound Sterling Bounces Back from 1.2700

The Pound Sterling is rebounding following a positive divergence observed on a daily timeframe, where the currency pair has been forming higher lows while a momentum oscillator is making lower lows. This typically signals a potential resumption of the uptrend, although confirmation from additional indicators is necessary.

The 14-day Relative Strength Index (RSI) is finding support near 40.00, indicating buying interest at these lower levels.

The GBP/USD pair continues to stay above the 200-day Exponential Moving Average (EMA), which is currently around 1.2650.

If the GBP/USD falls below Thursday’s low of 1.2665, it could open the door to further declines, targeting the June 27 low at 1.2613, followed by the April 29 high at 1.2570.

Conversely, if the pair recovers and rises above the August 6 high of 1.2800, it could advance towards the August 2 high at 1.2840 and the significant resistance level of 1.2900.