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Pound Rises On U.S. Inflation, GDP Looms

By Kenny FisherForexMay 11, 2022 10:36AM ET
Pound Rises On U.S. Inflation, GDP Looms
By Kenny Fisher   |  May 11, 2022 10:36AM ET
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The British pound is in positive territory, as the currency tries to break a four-day losing streak. In the European session, GBP/USD is trading at 1.2355, up 0.36% on the day.

U.S. Inflation Slows, But Higher Than Expected

U.S. inflation dipped in April, but still came in above the forecast. Headline CPI dropped from 8.5% to 8.3%, above the estimate of 8.1%. Core CPI came in at 6.2%, down from 6.5% but above the estimate of 6.0%. The U.S. dollar is broadly lower as a result, although the decline would have been sharper had the estimates been right on.

Today’s inflation data will no doubt result in some headlines proclaiming an “inflation peak,” but I would caution that it seems premature to declare that inflation is on its way down after just one release. Higher interest rates will do the job and curtail inflation, but it will take time. In the meantime, today’s inflation report will not change the Fed’s stance, and the CME’s FedWatch has pegged the likelihood of a 50-bps rate hike in June at 89%.

Looking forward, inflation gazing has become even trickier in the current environment. There are huge unknowns around price pressures due to the Ukraine war, as well as the extent of China’s slowdown and the impact on supply chains due to China’s uncompromising zero-COVID policy. With energy prices at very high levels, it will be difficult for headline CPI to come down.

Over in the U.K., we’ll get a load of data on Tuesday. The key release, Preliminary GDP for Q1, is expected to slow to 1.0%, down from 1.3% in the fourth quarter. The U.K. economy is showing an unhealthy mix of slower growth together with soaring inflation, which has raised concerns about stagflation. The Bank of England has been raising rates to curb inflation, but investors have not been impressed, as the pound has hit hard times and hit a 23-month low earlier this week.

GBP/USD Technical

  • There is support at 1.2199 and 1.2056
  • GBP/USD faces resistance at 1.2272 and 1.2418

GBP/USD Daily Chart.
GBP/USD Daily Chart.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Pound Rises On U.S. Inflation, GDP Looms

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Pound Rises On U.S. Inflation, GDP Looms

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