Fed minutes might put pressure on the British pound

17 August 2023 191
Fed minutes might put pressure on the British pound

The dollar index reached July’s high amid the release of strong statistics on the U.S. economy. The latest Fed data point to a probable continuation of the global reserve currency’s uptrend. At the same time, the British pound seemed resilient while other currencies weakened.

The U.S. dollar index and Treasury bond yields keep growing. Recent positive economic data has increased expectations about continued rate hikes in the U.S.

The July Fed meeting minutes showed that the majority of officials still prioritize fighting inflation. At the same time, some members indicated the risks of excessive rate hikes to the economy.

According to the futures contracts, investors currently do not expect another rate increase this year. They continue to forecast that the Fed will ease its policy in 2024 and by the end of next year the rate will fall to about 4.25%.

Core inflation in the UK is declining, but some items in the consumer basket are still rising rapidly.

Official statistics showed that the Consumer Price Index fell to 6.8% last month from a peak of 11.1% at the end of 2022. As a result, inflation remains well above the Bank of England's 2% target. It has also been stronger than economists had expected in five of the past six months. It will increase the probability of higher interest rates. Earlier this month, Bank of England Governor Andrew Bailey warned that borrowing costs have to stay high for a longer period of time in order to lower inflation.

In fact, yesterday the Fed gave a stronger rate signal, which might lead to the ongoing rise of the dollar against the British pound.

According to the technical analysis, the GBP/USD currency pair continues to trade in a downtrend. However, the prices have approached its upper limit. Yesterday’s data on inflation in the UK tested this resistance. Now the price reversal and movement towards the lower limit of the trend might be expected.

The downside target will be the low of recent weeks, which corresponds to the price of 1.2625. A Stop-loss will be set slightly higher than yesterday’s peak at 1.278. Rising above it will mean the final break of the trend.

GBPUSD is likely to decline:

Take profit – 1.2625

Stop-loss – 1.2780

This content is for informational purposes only and is not intended to be investing advice.

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