Despite recent gloomy economic data, the British Pound is still a strong contender in the Forex market. It’s still vulnerable to a number of swings in sentiment and confidence. This is because of the ongoing uncertainty in US politics and the risk of covid lockdowns in China. Inflation plays a significant role in the value of the currency. Inflation levels in countries with high inflation are often the cause of monetary policy action, which can include interest rate hikes and lowering the exchange rate.
The Consumer Price Index (CPI) measures how much goods and services cost. It’s used by the Bank of England as a benchmark for inflation. If the index falls below its target, the Bank will take action to address the issue. Inflation plays a major role in the value of the GBP. It is also important to consider the timing of monetary policies. The Bank of England is in a tightening cycle. The UK government is trying to strengthen the currency by implementing spending cuts and tax increases worth GBP50bn.
The GBP/USD pair has been in a strong bullish trend since the start of the week. This continued during the evening session and is likely to continue until the risk backdrop settles. The most recent data released by the Office for National Statistics showed a drop in Retail Sales. This was a surprise and weighed on sterling. However, the PMI reading was better than expected. This bodes well for services and manufacturing in the UK, although the figures for the US showed weakness.
The Commitment of Traders report showed a slight increase in the number of traders who were bullish about the economy. This could be due to the uncertainty surrounding the US midterm elections, as well as ongoing covid lockdowns in China. This could increase the odds that the US central bank will increase interest rates. This could also mean the dollar will remain strong.
The British pound is currently trading at $1.2726 against the US Dollar, which is a significant increase over the past few days. This is the first time the exchange rate has been above the 1.3050 level since the start of the month. However, the pair is still vulnerable to the bears, as it has retreated below the 1.2150 level. The next major resistance is at 1.3150, which could see further gains. This level is important for the next move.
The UK government’s “Growth Plan 2022” is also driving the currency’s price. The plan calls for large tax cuts to be financed by deficit spending. It also sparked a wave of volatility in the pound. This is because of the risk of the plan failing.
While the Consumer Price Index (CPI) is a good indicator of inflation levels in the UK, the real measure of monetary stability is confidence in the currency. This is one of the reasons why the Bank of England raised interest rates. The Bank defines monetary stability as low inflation.