UK Inflation Falls to a Two-Year Low, GBP/USD Stable, All Eyes on the Fed

GBP/USD Price, Analysis, and Charts

• UK CPI fell to 3.4%, beating expectations.
• Fed rate decision, new dot plot, and press conference now key

​Most Read: British Pound Wilts as Markets Await Both Fed and BoE

According to the latest Office for National Statistics data, UK inflation fell faster than expected in February, pushed lower by falling food prices. Headline inflation fell to 3.4%, down from 4% in January and marginally lower than market forecasts of 3.5%, while core inflation fell to 4.5%, down from 5.1% and a fraction below market estimates of 4.6%. Good news for the Bank of England as it continues to bring price pressures down to 2%.

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The Bank of England is fully expected to leave interest rates untouched tomorrow at its latest MPC meeting, although today’s data will encourage the more dovish BoE members to press harder for a rate cut. Financial markets are fully pricing in the first move in the UK Bank Rate at the August meeting, although the probabilities of a cut at the June meeting have risen slightly post-inflation data to around 50%.

Later today – 18:00 UK – the Federal Reserve will announce their latest monetary policy decision with the US central bank fully expected to leave all policy settings untouched. Chair Powell will also announce the latest dot plot, a visualization of Fed members’ thoughts on future interest rate levels. The current FOMC projections are centered around 4.625%, suggesting three 25 basis points this year. The new dot plot and Chair Powell’s commentary will be key for the US dollar going forward.

GBP/USD has drifted marginally lower post-data but remains in thrall of today’s Fed decision. Cable is clinging on to the 1.2700 level at the moment but any US dollar strength could see GBP/USD test 1.2667 ahead of this evening’s announcement. Currently 1.2742 acts as first resistance.

GBP/USD Daily Price Chart

IG Retail data shows 52.58% of traders are net-long with the ratio of traders long to short at 1.11 to 1.The number of traders net-long is 1.55% lower than yesterday and 22.23% higher than last week, while the number of traders net-short is 3.04% higher than yesterday and 21.02% lower than last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall.

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What is your view on the British Pound and the FTSE 100 – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.