5% Inflation! GBP/USD Poised to Rally

Summary:

A survey conducted by Citi in the UK reveals growing pessimism among Britons regarding inflation. Inflation expectations have surged from 3.3% to 5.4%, marking the largest increase in over two decades.

BUY GBPUSD

EXP

TRADING

1.33581

Entry Price

1.37000

1.32000

1.33538 -0.00109 -0.08%

0.0

Pips

Flat

1.32000

Exit Price

1.33581

Entry Price

1.37000

Fundamentals

Regarding the data from the UK Office for National Statistics, the year-on-year CPI increase remained at 3.0% in February, unchanged from January. Luke Bartholomew, Deputy Chief Economist at Abrdn, noted that the report feels like a "relic" of the world before the Iran conflict. While the data broadly met expectations and indicates inflation is easing toward the 2% target, the inflation outlook has fundamentally shifted. Since the outbreak of the war, surging oil prices have significantly heated up inflation expectations. Citi's survey, released on Tuesday, shows that the British public's one-year inflation expectation leaped from 3.3% in March to 5.4%, hitting its highest level since 2023, when official UK inflation was still above 10%. Citi stated that long-term inflation expectations rose more modestly, from 3.6% to 4.5%. Last week, the Bank of England's Monetary Policy Committee unanimously agreed to hold rates steady; however, some members indicated that if energy prices remain elevated, borrowing costs may need to rise, further exacerbating pressure on an already sluggish economy. Since the escalation of the Middle East conflict, UK government bond yields have risen more sharply than in most countries. The market is concerned that the UK's reliance on imported natural gas makes it more sensitive to energy price volatility. Currently, financial markets are pricing in two to three 25-basis-point rate hikes by the BoE this year, though many economists view this with skepticism.

Technical Analysis

From a daily perspective, GBP/USD is oscillating near the Bollinger Middle Band and the EM12 (12-period EMA). The formation of two large bullish candles sandwiching one bearish candle signals a potential upward move. Resistance levels are identified at the psychological round number and the Bollinger Upper Band, specifically at 1.35 and 1.354. With the Bollinger Bands beginning to narrow and moving averages flattening, a trend reversal could occur at any time. The MACD has formed a golden cross, and both lines are pulling back toward the 0-line. Currently, they are still far from it, suggesting the rebound is not yet complete. The RSI stands at 46, indicating prevailing pessimistic sentiment among investors. Based on the 4H chart, the Bollinger Bands are narrowing, and moving averages are flat, with price oscillating within a triangular range. In the short term, the rebound appears unfinished, with a high probability of rising toward the Bollinger Upper Band. The RSI on this timeframe is 47, also reflecting bearish sentiment. Therefore, it is recommended to buy the dips.

Trading Recommendations

Trading direction: Buy

Entry Price: 1.335

Target Price: 1.37

Stop Loss: 1.32

Support: 1.32/1.3/1.28

Resistance: 1.35/1.38/1.41

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5% Inflation! GBP/USD Poised to Rally

Risk Disclosure