GBP/USD Tumbles for Three Days, UK CPI Wary
GBP/USD extended its decline into a third day on Wednesday, falling back below 1.3400. Selling accelerated after a technical reversal triggered further weakness, while market participants opted to stay on the sidelines ahead of the UK CPI release on Wednesday. Lack of buying interest kept Cable under pressure throughout the session.
Consensus projects the UK headline CPI to rise to 4.0% YoY in September, with the core CPI to 3.7%. Still-sticky inflationary pressures are narrowing the Bank of England's (BoE) maneuvering room amid the risk of a steepening recession. A hotter CPI reading could tactically boost the GBP, but weak growth prospects risk limiting the rally.
From the US side, Friday's CPI is expected to rise to 3.1% YoY from 2.9%. Despite both increases, the US monetary authority is still considered on track for two interest rate cuts before the end of the year, creating a policy divergence that tends to favor the USD. A surprise higher US CPI could strengthen the dollar and put further pressure on cable.
In terms of risk allocation, the market is awaiting inflation releases in both countries before taking large positions. As long as GBP/USD remains below 1.3400, the bias remains bearish with the risk of further downside; a recovery requires a convincing reclaim above the "handle" to ease short-term selling pressure.
Key Points (5):
- Cable has fallen for three consecutive sessions, below 1.3400 ahead of UK CPI.
- UK CPI projections of 4.0% YoY, BoE core 3.7% are increasingly at odds.
- US CPI forecast of 3.1% YoY; Fed still on track for two cuts this year.
- BoE vs. Fed policy divergence tends to favor the USD.
- The bias remains bearish as long as it is below 1.3400; relief rallies require reclaiming the handle. (asd)
Source: Newsmaker.id
