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19.06.2019 04:42 PM
GBP/USD: Bank of England has no reason to lower rates, unlike the Fed and the ECB, which will support the pound in the medium term

The British pound strengthened slightly against the US dollar on Wednesday in the first half of the day after the release of the report, which showed that the level of inflation in the UK corresponds to the target value of the Bank of England and there is no cause for concern yet.

On the one hand, good inflation leaves a wide margin for the actions of the British regulator in the event of slowing economic growth. On the other hand, raising interest rates to curb inflationary pressures, if necessary, will also help British pound buyers.

According to the Agency of Statistics, the CPI UK consumer price index increased by 0.3% in May 2019 compared with April. On an annualized basis, March inflation remained at 2.0%, which coincides with the target level of the Bank of England.

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As for core inflation, it is also within acceptable limits. Prices excluding volatile categories in the UK rose by 0.2% in May compared with April and by 1.7% per annum.

The main annual growth was recorded in the retail price index, which added 3.0%. The UK Output PPI producer selling price index rose 0.3% and 1.8% respectively in May, while the input price index of manufacturers PPI Input in the UK in may remained unchanged and increased by 1.3% per annum.

The data almost coincided with the forecasts of economists, who expected that inflation in the UK would be 2.1%.

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The British pound strengthened its position, as the Bank of England is unlikely to signal a possible reduction in interest rates amid uncertainty about Brexit. However, regulators in other countries, particularly the European Central Bank and the US Federal Reserve, are going to get back on the path of soft monetary policy, which will support the British pound in the medium term.

As for the technical picture of the GBP/USD pair, the further upward trend in the pound will depend entirely on the statements made by the Fed today. A break of resistance around 1.2605 will lead to a larger upward correction and the update of the highs of the 1.2650 and 1.2690 areas. On the other hand, maintaining the former approach of the Fed to interest rates will increase the pressure on the pound, which will lead to a breakthrough of support for 1.2540 and a bigger sale of the trading instrument to the lows of 1.2490 and 1.2405.

As for the technical picture of the EUR/USD pair, it remained unchanged. The further direction of the market will depend entirely on today's Fed decision on interest rates. Although none of the economists expects rates to be lowered at this meeting, the committee may declare monetary policy easing in the future, which will hit the US dollar and support the euro. If the Fed chairman is quite sharp in his statements, the short-term demand for the euro may return, which will allow the bulls to break through the resistance of 1.1240 and update the highs around 1.1290 and 1.1340. A break of support at 1.1180 will increase the pressure on risky assets and will lead to updating of the next lows in the area of 1.1140 and 1.1080.

Jakub Novak,
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