Should You Sell or Buy GBP-USD Following UK October Inflation Report?

Should You Sell or Buy GBP-USD Following UK October Inflation Report?

November 16, 2022 0 By Alicia Hagen
  • UK CPI inflation hit 11% last month – a 4-decade peak.
  • Domestic fuel prices contributed to the higher-than-expected inflation.
  • GBP-USD stays bid with the USD offered in the Forex dashboard.

The United Kingdom inflation data was among this week’s most notable economic events. In October, the UK saw inflation hitting levels never seen for more than four decades. The prices of services and goods soared 11.1% year-over-year.

Moreover, the Core Consumer Price Index Y/Y (excluding volatile tobacco, alcohol, energy, and food items) hit 6.5%. The market anticipated lower Core CPI and CPI data. Nevertheless, soaring domestic fuel costs and household & housing services saw inflation climbing much higher.

A currency responds to inflation shifts since traders expect the following interest rate change. Market participants expect a more aggressive rate hike whenever inflation surpasses the bank’s target. However, the tale is different in this cycle. Inflation remains high than banks’ targets in many advanced economies.

It’s becoming entrenched in businesses’ and households’ anticipating, making it more challenging to fight. Meanwhile, the Bank of England warned about inflation hitting the double-digit region in the 2022 final months. Thus, today’s data, though shocking, isn’t unanticipated by the BoE. So, are we dealing with a bearish or bullish pound, especially the GBP-USD exchange rate?

GBP-USD Hits Resistance at 1.20

The pound plunged after the markets responded to the proposed mini-budged early this year. GBP-USD dropped beneath 1.05, suffering the most. Nevertheless, buyers resurfaced, and the currency squeezed higher within no time. 1.20 represents a crucial resistance zone that presented support previously.

Nonetheless, the pair needs a climb beyond its previous lower high to cancel the bearish trend. Meanwhile, the most crucial facet for GBP-USD traders is perhaps it seems a USD move. The dollar remained sold across the Forex board, following cooled US inflation data, and the GBP-USD exchange rate played along.

The markets had already priced today’s United Kingdom inflation data, as the BoE had previously warned. Thus, expect a continued GBP-USD rally if the dollar stays offered.

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