The GBP/USD price went sideways on Tuesday as the market reflected on UK’s fiscal situation. It was trading at 1.1312, which was a few points below this week’s high of 1.1436. This price is about 10% above the lowest level this year.
UK inflation data ahead
The GBP price has been in a consolidation mode with most investors focusing on the latest U-turn by Lizz Truss’ administration. In a statement on Monday, the new Chancellor announced a change of plan on tax cuts. The administration will do away with over £32 billion worth of tax cuts and reduce some of the planned spending, as we wrote here.
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Investors have welcomed these measures as evidenced by the performance of the bond market, sterling, and UK stocks. On Tuesday, the FTSE 100 index, which tracks the 100 biggest blue-chip stocks rose by more than 0.70%.
The next key forex news for the GBP/USD price will be the upcoming UK consumer inflation data scheduled for Wednesday. Economists polled by Reuters expect the data to show that the headline inflation slipped from 0.5% in August to 0.4% in September. This will translate to a year-on-year increase of 10.0%.
Core inflation, which excludes the volatile food and energy prices, is expected to have risen from 6.3% to 6.4%. The Office of National Statistics (ONS) will also publish strong producer price index (PPI) and retail price index (RPI).
Still, analysts believe that UK’s inflation will likely continue rising since the new chancellor pledged to reduce the support of energy prices. Without this support, there is a likelihood that inflation will rise to over 15% in the coming months.
As a result, analysts expect that the Bank of England (BoE) will continue hiking interest rates in the coming months. The consensus is that the bank will hike by 100 basis points soon.
GBP/USD forecast
The four-hour chart shows that the GBP/USD price has been in a tight range recently. It seems to be forming what looks like a double-top pattern. Also, it has managed to move above the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has pointed downwards.
Therefore, there is a likelihood that the pair will pull back as investors reflect on Lizz Truss’ administration. If this happens, the next key level to watch will be at 1.1100.
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