GBP/USD Forecast: Pound Breaks 1.20 as Soaring Inflation Weighs

GBP/USD Forecast: Pound Breaks 1.20 as Soaring Inflation Weighs

  • UK inflation hit 10.1% in July.
  • Markets are fully pricing a 50bps rate hike from the BoE in September.
  • The UK is facing a looming recession.

Today’s GBP/USD forecast is bearish as data revealed that UK inflation rose to its highest level in more than four decades in July. This rise will pressure the Bank of England to lower prices but raise the possibility of a more severe economic recession. This news led to a decline in the value of the British pound on Wednesday.

-Are you looking for automated trading? Check our detailed guide-

According to government statistics, consumer price inflation increased to 10.1% in July, its highest level since February 1982. According to a Reuters poll, experts predicted that inflation would increase to 9.8%.

Higher-than-expected inflation reinforces that the Bank of England (BoE) will raise interest rates by another half-point in September. According to statistics from Refinitiv, money markets are now wholly priced in a 50 basis point rate increase from the central bank for next month.

Traders are already pricing an additional 200 basis points of tightening by May, raising the Bank Rate to 3.75%. According to Refinitiv data, traders anticipated that interest rates would peak in March and tighten another 150 basis points.

Analysts maintained that even if inflation was at its highest point in decades, the pound outlook remained gloomy because increased front-loading rate increases raised the likelihood of a rough landing for the economy.

“Today’s CPI print reinforces the stagflationary risks in the UK. You wouldn’t necessarily want to be holding a risky currency like sterling into a recession,” said Viraj Patel, global macro strategist at Vanda Research.

GBP/USD key events today

GBP/USD investors will be focused on the United States today. They expect the initial jobless claims report, the Philadelphia Fed Manufacturing Index, and the existing home sales report.

GBP/USD technical forecast: Bears eying range breakout

GBP/USD price

Looking at the 4-hour chart, we see the price trading within a rectangle with resistance at 1.22593 and support at 1.20272. Currently, the price is trading below the 30-SMA, a sign that control belongs to bears. The RSI also supports this as it trades below 50.

-Are you looking for forex robots? Check our detailed guide- 

The price is making another attempt to break below the rectangle support. Many more bears are waiting for a break below this support before they get in and push the price lower.

Looking to trade forex now? Invest at eToro!

67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

Saqib Iqbal

Saqib Iqbal

Saqib Iqbal is a market analyst, prop fund trader and mentor, serving the industry with his analysis and educational content since 2011. The author has great exposure to different financial markets and institutions. He's well-known for his day trading reviews and multiple timeframe analysis.