GBP/USD Approaches Resistance on Rising Inflation

Inflation in Britain is up again after taking a breather last month. The annual pace of CPI rose from 4% to 4.5%. A rise to 4.2% was expected.This fresh rise boosts GBP/USD which approaches  the resistance region and continues higher. Update.

4.5% is the highest level seen for a very long time. This shows that last month’s drop was only temporary. Also Core CPI leaped from 3.2% to 3.7%, exceeding expectations for a rise to 3.4% (annualized). Only RPI was marginally softer than expected, at 5.2% rather than 5.3%.

This significantly raises the chances for a rate hike sooner rather than later. GBP/USD now trades at around 1.63, within the resistance region of 1.6280 – 1.63.

Last month, the consumer price index dropped to a pace o 4%. This significant ease came on the background of the central bank’s reluctant attitude to raising the rates and sent the pound lower.  

The background is slightly different now. The recent inflation report published by the Bank of England saw rising inflation in the long term, from 1.6% to 1.9%. Needless to say that in the short term, inflation is far off target – still far from 1-3%.

This miss forces Mervyn King, the governor of the BoE to write a public letter to the Chancellor of the Exchequer George Osborne, and explain why inflation is high and what the central bank intends to do about it.

The attitude of the letter will also rock the pound. Given past letters, there’s a good chance that Mervyn King will pound the pound. This is due quite soon.

Before the release, GBP/USD made an upwards move, perhaps on rumors for a strong result. The pair approached resistance at the 1.6280 to 1.63 region. Further resistance is at 1.6430 and support is at 1.6110.

For more technical analysis and upcoming events, see the GBP/USD forecast.