Inflation data is driving the British pound upwards

The pound is facing challenges in maintaining its gains against the dollar

By Raed Alkhedr | @raedalkhedr | 16 August 2023

  • Inflation growth in Britain is proceeding at a slower pace than anticipated

  • Right after the data release, the British pound is showing an upward trend

  • The sterling-dollar pair is starting to recover from significant resistance levels

Economic events are impacting the GBP/USD pair

The British pound has demonstrated a noticeable upswing against most major currencies for the second consecutive session, particularly in the wake of the release of critical inflation data in the United Kingdom for July.

In this regard, data that was unveiled this morning by the Office for National Statistics in Britain indicates a slowdown in the annual growth of inflation to 6.8%, in contrast to the previous reading of 7.9%. Meanwhile, the index that excludes food and energy remains unchanged at the same previous reading of 6.9%. On a monthly basis, the UK Consumer Price Index has contracted by around 0.4% compared to the previous reading, which indicated a growth of 0.1%.

On the other hand, the UK Producer Price Index has registered a contraction of approximately 3.3% on an annual basis, compared to the previous reading which showed a contraction of 2.9%.

The data has slightly exceeded market expectations, indicating the degree of inflationary pressures on policymakers at the Bank of England and the necessity to uphold the tightening of monetary policy for as long as feasible. This has heightened the probability of a 25 basis point increase in British interest rates during the meeting next month.

Key technical levels that might impact GBP/USD movements should be taken into consideration

In terms of trading, the British pound has commenced the day's trading with a substantial upswing against the US dollar, with the currency pair trading close to the 1.2758-dollar mark.

However, notwithstanding the immediate rise following the data release, the pair has been unable to breach the crucial resistance levels at 1.2770 and swiftly retreated. It is likely that prices will undergo further declines in the upcoming period if trading remains below the 1.2770 levels, moving towards 1.2620.

Considering that a successful breakthrough of the 1.2770 levels may lead to the continuation of the pair's upward movement towards the 1.2880 levels.

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