GBP Muted as Inflation Expectations are Left Unchanged; Eyes on Next Weeks CPI

GBPUSD Analysis and News

  • Inflation Expectations Among Public Remain Above BoE’s 2% Target
  • GBP May Rise on Higher Than Expected Inflation

For a more in-depth analysis on Sterling, check out the Q2 Forecast for GBP/USD

Public Forecasts Inflation to Remain Above BoE’s 2% Target

Bank of England/TNS Inflation attitudes survey for May showed that inflation expectations from current to two years ahead were left unchanged from the previous quarter. Across the 5-year horizon, inflation is seen to remain above the BoE’s 2% inflation target. This contrasts with the BoE’s inflation report, whereby the MPC lowered their CPI expectations across the forecast period with inflation seen hitting the price goal by 2020 after inflation has continued to ease (now at 2.4%). Typically, this survey does not have the propensity to instigate a notable market reaction and as such, GBPUSD saw a little/no reaction upon the release.

As a reminder, BoE’s Ramsden noted that inflation persistently above target would represent a failure of the MPC to meet its remit, which in turn provides calls for additional tightening, while BoE Governor Carney stated that the central bank could tolerate a lengthier inflation overshoot. Subsequently, this indicates that the central bank will remain gradual when delivering rate hikes. Latest CPI figures are due next week, with the headline reading expected to tick up 0.1ppt to 2.5%, while the core reading is seen sticking at 2.1%. A reading that is above expectations could underpin the currency as markets increase pricing in for an August hike.

GBPUSD PRICE CHART: DAILY TIME FRAME (JULY 2016-MAY 3, 2018)

Chart by IG

GBPUSD Technical Levels

On the upside, the initial target for GBPUSD buyers is at 1.3480, yesterday saw the pair fail to hit the target, having reached a high of 1.3472. Support is situated at 1.3375, which marks the 50DMA.

IG Client Positioning suggests that recent changes in sentiment show that the current GBPUSD price trend may soon reverse higher.

— Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX

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