GBP/USD: Inflation Data Triggers Volatility Amidst BoE and Fed..

GBP/USD: Inflation Data Triggers Volatility Amidst BoE and Fed Meetings



As anticipated in our previous analysis, GBP/USD experienced a shift in momentum following Tuesday's CPI report, climbing to around 1.2600 before reversing course and dipping below 1.2515. The upcoming US inflation data for November is poised to be the catalyst for the next significant market move, setting the stage for key policy meetings by the Federal Reserve (Fed) and the Bank of England (BoE).

UK Annual Wage Inflation Decline:

The UK witnessed a notable decline in annual wage inflation, measured by the change in Average Earnings Including Bonus, which dropped sharply to 7.2% in the three months to October from the previous 8%. Average Earnings Excluding Bonus followed suit, registering a decrease from 7.8% to 7.3% in the same period.

Potential Impact on BoE Policy:

While the BoE is expected to maintain its current policy stance this week, the soft wage inflation readings could be viewed favorably by policymakers. The concerns over robust pay growth hindering efforts to bring inflation back down to the 2% target may find some relief in these figures. The central bank's response to evolving economic indicators will be closely monitored in the coming weeks.

Technical Analysis and Bearish Setup:

Our analysis maintains an unchanged bearish setup for GBP/USD, with anticipated targets at 1.2500 and 1.2480 in extension. The softening wage inflation data and potential implications for BoE policy contribute to the prevailing bearish sentiment.

Conclusion:

As GBP/USD navigates through volatile market conditions, the upcoming US inflation data will likely play a pivotal role in shaping the currency pair's trajectory. With the BoE policy meeting on the horizon, the impact of wage inflation on central bank decisions adds an extra layer of complexity to the market dynamics. Traders and investors should remain vigilant as they assess the evolving economic landscape and adjust their strategies accordingly.

Our preference

Short positions below 1.2585 with targets at 1.2500 & 1.2480 in extension.