The GBP/USD pair rose modestly after the latest UK consumer price index (CPI) data. The pair rose to 1.3856, which was a few pips above Tuesday’s low of 1.3800.
Jerome Powell testimony ahead
The GBP/USD reacted mildly to the latest UK inflation data. The numbers showed that the headline CPI rose by 2.5% in June, the highest increase since August 2018. It was also above May’s increase of 2.1% and the median estimate of 2.2%. The CPI was also above the Bank of England’s target of 2.0%. In the recent BOE decision, Andrew Bailey said that the country’s inflation will peak at about 3%.
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Core CPI, which excludes the volatile food and energy prices rose by 2.3% in June after rising by 2.0% n May. These year-on-year gains are from a low base considering that the UK inflation declined sharply in June 2020 amid the pandemic. Indeed, the month-on-month data showed that the CPI and core CPI dropped to 0.5% in May. Therefore, the Bank of England will likely maintain its policy when it meets later this month.
The biggest catalyst for the GBP/USD pair will be Jerome Powell, the Federal Reserve chair. He will testify to the House Committee on Financial Services later today. In this testimony, he will deliver his semiannual update on monetary policy.
This testimony is notable because it comes a day after the relatively strong US consumer inflation data, The numbers showed that the headline CPI rose to 5.2% in June while core CPI rose to 4.2%. This was the highest level since 1991. Therefore, analysts will be watching for his tone about future monetary policy.
Also, the testimony comes a week after the Fed published the latest FOMC minutes that showed that some members of the committee started talking about tapering. Most importantly, other banks like the Reserve Bank of New Zealand (RBNZ) started tapering its asset purchases.
The four-hour chart shows that the GBP/USD pair has been in a tight range recently. The pair remains between the support and resistance level at 1.3741 and 1.3900. This price action resembles a bearish flag pattern considering that the price was previously in a bearish trend. Therefore, there is a possibility that the pair will bounce back lower as investors price in a more hawkish Fed.
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