On Wednesday (July 16), during the Asian and European sessions, the British Pound strengthened against major currencies, rising 0.28% against the USD to 1.3416, due to the UK’s June inflation growth exceeding expectations. Investors turned their attention to the UK labor market data for the three months up to May. The US CPI report indicated that Trump’s tariffs have started to push up consumer prices.
After the UK’s June Consumer Price Index (CPI) data released on Wednesday exceeded expectations, the British Pound received Bid support against major currencies. The UK Office for National Statistics (ONS) reported that the overall annual inflation rate rose to 3.6%, above the expected 3.4% and the previous figure from May. Excluding volatile items like food, energy, alcohol, and tobacco, the core CPI annual rate increased by 3.7%, faster than the expected 3.5% and the previous figure. On a monthly basis, the overall CPI grew by 0.3%, also higher than the expected 0.2% and the previous figure.
Meanwhile, the inflation Indicators closely monitored by the Bank of England (BoE) officials in the services sector are steadily rising at 4.7%. Signs of accelerating price pressure should prompt the BoE to advocate for maintaining a restrictive monetary policy stance. However, as price pressures rise alongside a cooling labor market, the BoE may need to carefully weigh its decision on interest rates during the August monetary policy meeting.
The inflation data exceeding expectations may force the market to reassess bets on the BoE cutting rates within the year. Prior to the release of this data, traders generally expected the central bank to lower rates at next month’s policy meeting. Investors are waiting for Thursday’s release of employment data for the three months up to May to gain insights into the latest trends in the UK labor market.
The policy by Chancellor Rachel Reeves to increase employer National Insurance contributions has resulted in a slowdown in hiring. A recent survey by the Recruitment and Employment Confederation and KPMG indicates a significant increase in the number of job seekers.
Market Dynamics
The British Pound (GBP) ended an eight-day decline against the USD (USD) and is now trading around 1.3400. This rebound occurred against the backdrop of a strengthening USD — signs that President Trump’s tariff policies are beginning to influence prices supported the USD.
On Tuesday, the US CPI report showed that producers are passing on the impact of Trump’s tariffs to consumers. Prices in categories such as household goods, entertainment, and Outfits have increased, driving the overall CPI annual rate to the expected 2.7% (previous value 2.4%). Market experts warn that the effects of the tariffs that take effect on August 1 have not fully emerged, and price pressures could rise further. An Analyst at Oxford Economics stated: “If new tariffs are implemented, the inflationary push on Commodity prices will manifest in months, which will keep the Federal Reserve on the sidelines—unless the labor market suddenly deteriorates.”
Signs of accelerating short-term inflation pressures have forced traders to cut back on their dovish bets on the Federal Reserve. The CME FedWatch tool shows that the probability of a rate cut at the September meeting has fallen from 64.7% a week ago to 55.5%. The market has almost fully priced in that the policy meeting later this month will keep rates unchanged at 4.25%-4.50%.
President Trump has imposed tariffs on 22 economies, including Japan, South Korea, and the European Union, which have not reached a trade agreement during the 90-day tariff suspension period. The United States has currently reached agreements with the United Kingdom, Vietnam, and Indonesia, and has signed a limited deal with China. Trump stated on Tuesday that he is confident in reaching trade agreements with five or six countries soon, which may include India.
Technical analysis: The British Pound is trading below the 20-day and 50-day moving averages.
The British Pound rebounded to around 1.3400 on Wednesday from a seven-week low near 1.3370 touched the previous day. As the exchange rate is currently below 1.3580 (20-day moving average) and 1.3499 (50-day moving average), the short-term trend has turned bearish. The 14-day Relative Strength Index (RSI) has fallen below 40.00, and if it remains below this level, it will strengthen the Put momentum.
On the downside, the low of 1.3140 on May 12 forms a key Resistance; on the upside, the high of 1.3585 on July 11 forms significant Resistance.
(British Pound to USD daily chart, source: 易汇通)
As of 15:26 Beijing time, the British Pound to USD is currently reported at 1.3399/1.3400.