The British pound's abrupt and aggressive depreciation following disappointing UK inflation data continues to highlight how sensitive the currency is to monetary policy speculation. The UK headline inflation rate unexpectedly dropped to 2.5% in March, which immediately raised doubts over the Bank of England raising interest rates next month. With UK wage growth rising faster than inflation, the squeeze on consumers is slowly coming to an end.
However, price action suggests that market players are concerned that today’s soft inflation figures will lead the BoE to leave interest rates unchanged in May. Personally, I believe today’s figures are unlikely to prevent the central bank from taking action next month. But if inflation continues to cool, this could cloud the prospects of higher interest rates beyond May, subsequently weighing on the British pound.
Focusing on the technical picture, the British pound/U.S. dollar (GBP/USD) currency pair has found itself under pressure on the daily charts, with prices tumbling towards 1.4180. Previous support around 1.4230 could transform into a dynamic resistance that encourages a decline toward 1.4100. If bulls are able to push the GBP/USD back above 1.4230, the next level of interest will be at 1.4300.
Dollar steady, but for how long?
The dollar remained steady against a basket of major currencies on Wednesday, after upbeat U.S. data from the previous session supported appetite for the currency. Hawkish comments from Fed member John Williams supported the upside, with the Dollar Index trading around 89.66 as of writing.
The impact of Trump’s tweet earlier in the week about China and Russia playing the “currency devaluation game” can still be seen in the Dollar's overall depressed price action. While positive economic data and U.S rate hike expectations could boost the dollar, gains are at risk of being limited by geopolitical tensions, lingering trade war fears and Donald Trump. A lingering sense of caution over the U.S.-China trade developments may still weigh on the dollar, forcing the currency to remain shaky and wobbly.
Taking a look at the technical picture, the Dollar Index has found comfort within a wide range on the daily charts, with support at 88.50 and resistance at 90.50. A breakdown below the 89.50 could encourage a decline back towards 89.00. In an alternative scenario, bulls have a chance of challenging 90.50 if the Dollar Index is able to secure a daily close above 90.00.
Commodity spotlight: Gold
Gold edged slightly lower during Wednesday’s trading session with prices trading toward $1,346 per oz. as the dollar stabilized. Price action suggests that the yellow metal remains in a wide range on the daily charts, with a directional catalyst needed for the next major move. While geopolitical tensions and U.S. political uncertainty have inspired bulls, bears remain heavily supported by Fed rate hike expectations. There is clearly a fierce tug of war between bulls and bears. From a technical standpoint, the yellow metal has found minor support around $1,340. If this level proves supportive, prices could venture towards $1353 and $1360, respectively. Alternatively, a decline back below $1,340 may encourage a selloff towards $1,324.