Gbpusd faces pressure as UK inflation rises and US housing slows

GBPUSD Analysis

Performance after Wednesday
Period	Pct	Chg	Momentum
Wednesday	-0.29%	-37.3 Pips
Week to-date	0.25%	31.2 Pips
November	-1.91%	-246.7 Pips

Upcoming key events (London Time)

Fri 07:00 AM GBP Retail Sales Volumes (1-mth)

What happened lately

The United Kingdom’s economic indicators for October show a substantial rise in consumer prices and other inflation measures. The Retail Price Index increased to 3.4% from 2.7% in the previous month, indicating growing cost pressures for consumers. Meanwhile, the Consumer Prices Index (CPI) surged to 2.3%, up from 1.7% in September, suggesting increasing inflationary pressures. The Producer Price Index – Core Output rose to 1.7% on a 12-month basis, compared to 1.4% previously, further underlining the inflation trend. Additionally, the Core CPI Inflation Rate in the UK marginally increased to 3.3% from 3.2%. These metrics collectively highlight rising inflation in the UK, which is likely to weigh heavily on the economic strategy and monetary policy decisions. The Office for National Statistics was the reporting source for this data.

Across the Atlantic, the United States saw a reduction in housing market activity in October. Housing Starts decreased to 1.311 million, a drop from the revised 1.353 million in September, indicating a slowdown in residential construction. Building Permits also took a hit, falling to -0.6 million from 1.425 million previously, which could suggest future declines in construction activity. With the U.S. Census Bureau providing this data, the weak performance in the housing sector could impact confidence in the U.S. economy and may influence future monetary policy considerations.

Regarding GBPUSD, the currency pair experienced a decline of 0.29% to 1.26489. The data regarding increased inflation in the UK suggests potential for more aggressive monetary tightening by the Bank of England, which often supports the British pound. However, the sell-off in GBPUSD suggests that the market might have anticipated these inflation figures, or it could be responding to other factors, such as expectations of further U.S. rate hikes given the economic weakness in the housing sector. High UK inflation data may provide some support to the pound in the future if the Bank of England signals a rate rise, while the dollar might gain on safe-haven flows if the U.S. economic picture darkens. The upcoming GBP Retail Sales Volumes report could provide further clues for the currency pair’s direction as markets digest this mix of data.

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What can we expect from GBPUSD today?

GBPUSD on Wednesday dropped -0.29% to 1.26489. Price is below 9-Day EMA while Stochastic is rising.

Updated daily direction for GBPUSD looks bearish as the pair posted lower in Wednesday trading session.

Looking ahead for the day, immediate support level is at S1 1.26148 with break below could see further selling pressure towards S2 at 1.25806. To the upside, with the current momentum bearish, we prefer to look at breakout of the recent daily high of 1.27145 as a potential indicator of buying interest. Failure to break the resistance level would continue to echo bearish sentiment. A close below 1.26305 would indicate selling pressure.

For the week to-date, take note that GBPUSD is mixed as compared to the prior week.

Key levels to watch out:

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