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The British pound was under pressure against the US dollar, as traders began to evaluate the possible increase in the bond purchase program by the Bank of England. The regulator is expected to approve the program during its next policy meeting on Thursday. Most likely, the central bank will announce additional measures of quantitative easing, as today's data on inflation does not signal any problems in the future.
According to the report, the UK Consumer Price Index in May 2020 remained unchanged compared to April. This data indicates a halt in the rapid decline that followed the lockdown measures. Annual inflation was up by 0.5%, while its growth was projected to be 0.6%.
The report suggests that the slowdown of the inflation rate has stopped. However, this is only the beginning of a long period of weak prices which will increase only after the UK economy returns back to normal. Against this backdrop, tomorrow's increase in the quantitative easing program by another 100-150 billion pounds does not look so terrible.
The UK Core CPI, excluding volatile categories and energy sources, also remained unchanged in May and grew by 1.2% year-on-year, which is quite far from the target level of the Bank of England. Many economists predict that this year total inflation will be less than 1% amid worsening labor market conditions.
In addition, the UK government still has not reached a trade agreement with the EU counties, as well as with members outside the European Union. The issue of inefficiency of the current political system in Great Britain has been raised several times. Now, the media will return to this issue and will focus on it even more, thus affecting the British pound appeal. Currently, there are no obvious reasons for the pound to hold at such high levels.
The technical analysis of the GBP/USD pair shows that only a breakthrough of the support level at 1.2450 will help resume the bearish trend. In the meantime, the bulls are gaining ground. The rise above the resistance level of 1.2600 may lead to a new upward wave on the pound with new highs at 1.2690 and 1.2800.
The European currency continued to slide against the US dollar amid news that the eurozone consumer price index fell by -0.1% in May and rose by only 0.1% year-on-year. The data came in line with economists' expectations. However, the current data did not discourage the European regulator since the real decline in prices was directly related to the sharp drop in energy prices and the coronavirus pandemic. The first problem has already been solved - prices have recovered. However, it might take more time to solve the second problem. The basic consumer price index confirms the current situation. According to the report, the core CPI for the eurozone in May remained unchanged and grew by 0.9% year-on-year, while many economists had expected this indicator to decline.
The technical picture for the EUR/USD shows that the bulls failed to sustain momentum in the morning trade. Now, their main goal is to return to the middle of the sideways channel at 1.1285. Then, it will be possible to return to the upper boundary at 1.1350. If the bearish trend prevails today, then the price will break this week's low at 1.1215. This will put significant pressure on the euro. Therefore, the pair may retest the area of 1.1160 and 1.1100.
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