The GBP/USD pair, also known as the cable, ticked lower on Friday after attacking the key resistance of previous highs in the 1.2440 zone, awaiting another bullish impetus to jump through it.
Economy fared slightly better than projected
Friday’s final revision revealed that the British economy grew by 0.1% during the last three months of 2022, up from 0% before. For the fourth quarter, the market consensus was at 0%.
In the fourth quarter, the annual growth rate of the United Kingdom’s gross domestic product increased by 0.6%, compared to 0.4% in the initial estimate and 0.4% as predicted.
Comparatively, the fourth quarter current account for the United Kingdom came in at £-2,483 million compared to £-17,6 billion anticipated and £-12,744 million in the previous quarter.
The country’s overall business investment during the fourth quarter was -0.2% quarterly and 1.08% annually.
UK inflation rises unexpectedly
According to government statistics issued yesterday, inflation rose unexpectedly last month, mostly because of the climbing price of food. Experts and the Bank of England had expected the consumer price index (CPI) to decline from 10.1% in January to 9.9% in February.
Nevertheless, the Office for National Statistics (ONS) announced that the 12-month CPI grew to 10.4% in February, with a monthly gain of 1.1%, above predictions of a 0.6% rise. According to the ONS, the main contributors to the increase were restaurants and cafés as a result of price increases in alcohol, food, and clothes.
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The annual increase in food prices was the largest in 45 years, at 18.2%, while core inflation, which excludes the more volatile components of food, energy, alcohol, and tobacco, jumped dramatically to 6.2% in February from 5.8% in January.
Michael Hewson, the chief market analyst at CMC Markets UK, observed, “Just when you thought inflation couldn’t get any worse, it does,”
Moreover, Reuters reported that British firms were more optimistic this month than at any point since May 2022, while the Bank of England’s (BoE) price predictions fell to a six-month low.
On the other hand, softening hawkish Fed bets, conflicting US data, and diminishing pessimism around the global banking sector appear to weigh on the US dollar ahead of the Core Personal Consumption Expenditures (PCE) Price Index for February.
Focus on US PCE inflation later today
The index is anticipated to have increased by 0.5% in February, following a 0.6% increase in January. Annually, the index most likely increased by 5.1%, decelerating from 5.4% in January and marking its weakest annual increase since September 2021. Excluding volatile food and energy costs, core prices likely increased 0.4% in February and 4.7% annually.
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The Fed prefers the PCE Price Index as a measure of inflationary pressures because it more closely monitors the purchasing decisions of US consumers. In addition, the index updates its basket of goods and services more regularly than the Consumer Price Index (CPI), which employs a fixed basket of commodities. The Fed aims for a PCE inflation rate of 2% per year.
If the mentioned resistance at 1.2440 gets broken, it could be a significant bullish signal, changing the long-term trend to bullish, targeting the 1.30 level.
On the other hand, the support is seen at 1.22, and the cable must stay above it for the medium-term bullish momentum to persist.
GBP/USD daily chart, source: author´s analysis, tradingview.com
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