The weaker-than-expected UK inflation report on Wednesday hardly affected the value of the pound sterling. Prior to today’s labour market data and the Bank of England meeting, investors opted for a wait-and-see strategy. After the Federal Reserve meeting, GBP was still required to react to changes in the US dollar. The market had anticipated that inflation would rise to 3.0% y/y in May, but it stayed at 2.8%. The question of whether the Bank of England will need to raise interest rates at all this year was rekindled by the weaker-than-expected figures. One rate increase is still being priced in by market players before the year ends.
However, pressure on the British currency may rise if the regulator indicates that it is prepared to stick with the existing course of action without taking any further action. It is anticipated that the interest rate will remain unchanged at the conclusion of the Bank of England meeting. However, Chief Economist Huw Pill and other members of the Monetary Policy Committee might vote in favour of tighter policy once more. The market will keep a close eye on this. Employment data, which will be a crucial point of reference for the Bank of England’s future decisions, will also be closely monitored by investors. The market is keeping an eye on UK political developments at the same time because potential shifts within the ruling Labour Party could raise the pound’s political risk premium.
GBP is still comparatively stable for the time being. However, expectations about the Bank of England’s interest rate trajectory and the future dynamics of the British currency may be determined by the events of the next 24 hours. On the H4 chart of GBP/USD, the market has completed a downward wave to 1.3262. A growth link in the direction of 1.3340 is anticipated. Below this level, a wide consolidation range is actually developing. The possibility for the wave to continue toward 1.3500 will arise if the price breaks out of the range and rises. A further decline towards 1.3194 is possible if the price breaks out lower.
The MACD indicator, whose signal line is solidly downward and below zero, technically validates this situation. The market has created a small consolidation range around 1.3300 on the GBPUSD H1 chart. The range has currently decreased to 1.3297. More growth in the direction of 1.3340 is anticipated. Technically, this scenario is also corroborated by the Stochastic oscillator: its signal line is above 50 and directed strongly higher towards 80.