Sterling sinks as US inflation soars

The British pound is steady on Thursday after a massive drop a day earlier. GBP/USD is currently trading at 1.3390, down 0.11% on the day.

US inflation sends the pound tumbling

It was a miserable Wednesday for the British pound, which fell 1.13% on the day. The catalyst for the slide was a red-hot performance from US CPI in October, which jumped 6.2% y/y, its fastest pace since 1991. The 10-year Treasury yield climbed to 1.59% on Wednesday. GBP/USD remains under pressure and fell to 1.3364 in today’s Asian session, its lowest level since December 21^st.

The pound’s decline comes on the heels of last week’s fall of 1.3% after the BoE stunned the markets and did not raise interest rates, as had been widely expected. Governor Andrew Bailey had given broad hints that he would raise rates, but in the end, he voted against a rate hike. Bailey has been forced to engage ins some damage control, but it appears that the bank has a credibility problem with the markets, and the BoE is under strong pressure to raise rates at the December policy meeting. However, two key releases from Thursday’s data dump, GDP and Manufacturing Production, were soft and point to weakness in the UK recovery.

The UK released GDP for the third quarter earlier today. The reading of 1.3% was shy of the consensus of 1.5%, but the pound’s reaction has been muted. The economy continues to expand as health restrictions have been further eased, but the quarterly GDP is still 2.1% below pre-pandemic levels. The service sector has rebounded since Covid, with the main sore spots being supply chain problems and consumer weakness. Manufacturing Production came in at -0.1% in September, down from 0.3% a month earlier.

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GBP/USD Technical Analysis

• GBP/USD is testing support at 1.3381. Below, there is support at 1.3267
• There is resistance at 1.3654 and 1.3813

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