- Data indicated that UK inflation in August had slowed more than anticipated.
- Investors rushed to scale back their expectations of the BOE increasing rates on Thursday.
- Traders see a 60% probability that the BOE will leave rates unchanged on Thursday.
Today’s GBP/USD forecast is bearish as the pound hovers near fresh lows hit after the UK inflation report. Notably, the pound hit its lowest point since late May, while UK government bonds and stocks gained ground on Wednesday.
This shift in the market was driven by data indicating that inflation in August had slowed more than anticipated. Consequently, it raised the possibility that the Bank of England might decide to pause its rate hikes this week.
Last month, British annual consumer price inflation dropped to 6.7%. Consequently, investors rushed to scale back their expectations of the BoE increasing interest rates on Thursday.
Moreover, traders now assess a 60% probability that the Bank will leave rates unchanged. It is a significant increase from the 20% probability on Tuesday, as indicated by pricing in derivatives markets. Additionally, there is now a 40% chance of a 25-basis-point increase to 5.5%, a scenario almost considered a certainty just a month ago.
Goldman economists, led by Sven Jari Stehn, noted in a research note that “The August inflation print surprised meaningfully to the downside, particularly on core and services inflation.” In light of this and recent dovish comments from the Bank, they predicted that the Monetary Policy Committee (MPC) would likely keep the Bank Rate unchanged.
Meanwhile, core inflation, excluding volatile food and energy prices, decelerated significantly to 6.2% year-on-year from 6.9% in July.
GBP/USD key events today
Investors will watch events from the UK and the US as follows:
- BOE interest rate decision.
- US initial jobless claims.
- Philadelphia Fed manufacturing index.
- US existing home sales.
GBP/USD technical forecast: Price dives to 1.2302 support.
On the charts, the GBP/USD price plunged to the 1.2302 support level after respecting the 1.2401 and 30-SMA resistance zone. Initially, the price stalled when it broke below the 1.2401 key level. Bears found it difficult to detach from this level until the 30-SMA caught up.
The subsequent decline saw the RSI drop, reaching nearer the oversold region. This region indicates solid bearish momentum. Although the price has paused at the 1.2302 support, it will likely break below to continue the downtrend.
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