GBPUSD is recovering from its lowest level in five weeks

Mohammed Abdelkhalik
June 16, 2021

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GBPUSD rose in early trading on Wednesday in the European market, recovering from its lowest level in five weeks which was recorded yesterday. This comes after the recent inflation data in the United Kingdom, which increased expectations of the British Central Bank to tighten monetary policy sooner than expected.

The GBPUSD pair traded at the level of $1.4123, up more than 0.3% from the opening level of today’s session at $1.4080, after closing yesterday’s trading, losing about 0.2% to reach its lowest level in five weeks at $1.4033, driven by the gains of the US dollar, which This was supported by strong data on producer prices during the month of May.


GBPUSD affect the inflation data in the UK

Consumer prices are on the rise worldwide with the economy recovering and commodity prices rising, this trend has also continued in the UK.

According to the Office for National Statistics (ONS), the headline consumer price index (CPI) rose 0.6% in May which is better than the expected slowdown of 0.3%, this increase led to an annual increase of 2.1% after rising by 1.5% in the previous month, this was The increase is above the BoE’s target of 2% and the average estimate of 1.8%.

Core CPI, which does not include volatile food and energy prices, increased from 0.3% to 0.8% m/m and from 1.3% to 2.0% y/y. This increase was mostly due to sharp increases in the prices of clothing, motor fuel, and recreational goods. Partially offset by lower food prices.

As the British Pound rose after the release of factory prices, the input PPI increased from 10% to 10.7% while the output PI increased from 4.0% to 4.6%, as such, these figures show that there is a large gap between producer and consumer prices.

The data came a day after the UK reported strong unemployment figures, as the unemployment rate fell from 4.8% in March to 4.7% in April, so these numbers may indicate the possibility of a tightening of the noose by the Bank of England (BOE) when the week meets next.

For now, analysts say, the bank is likely to start raising rates for the first time in early 2023, but a rapid economic recovery could push that forward in 2022.

The GBP/USD pair will react later in the day to the latest Fed rate decision, and analysts expect the Fed to leave rates unchanged and maintain a hawkish tone.

Author Mohammed Abdelkhalik

Professional Trader and Analyst, economist in Financial and Forex market since 2004.holds an MBA from the American University in Egypt. Mohammed works as an economic writer and technical & fundamental analyst for many international Forex and financial trading companies in both English and Arabic on a daily basis.