The Pound Sterling (GBP) showed resilience on Wednesday, climbing above the key resistance level of 1.2700 against the US Dollar (USD) following the release of UK inflation data by the Office for National Statistics (ONS). The report indicated a decline in price pressures in May, aligning with expectations.
Annual headline inflation in the UK returned to the Bank of England‘s (BoE) target of 2% for the first time in over three years, down from April’s 2.3%. Meanwhile, the core Consumer Price Index (CPI), excluding volatile items like food and energy, decreased to 3.5% from 3.9% previously.
Monthly headline inflation grew by 0.3%, slightly below estimates of 0.4%. Additionally, the Producer Price Index (PPI) for Core Output saw significant growth of 1.0% in May, up from a 0.3% increase in April.
Despite the headline CPI meeting expectations, concerns remain as service sector inflation, which impacts the broader economy, grew by 5.7%. This figure, though lower than the prior release of 5.9%, remains elevated and underscores persistent inflationary pressures.
Investor focus now shifts to the upcoming BoE monetary policy decision, expected on Thursday, where interest rates are anticipated to remain unchanged at 5.25%. Analysts will closely watch for any signals regarding the potential timing of rate cuts amidst ongoing inflation concerns.
In currency markets, the GBP/USD pair advanced, supported by positive UK inflation data, reaching near the 20-day Exponential Moving Average (EMA) at 1.2720. The pair found additional support at the 50-day EMA around 1.2670, indicating a cautious bullish sentiment.
As the 14-period Relative Strength Index (RSI) hovers within neutral territory (40.00-60.00), suggesting a lack of strong momentum, the Pound Sterling faces a critical juncture in its short-term price action.
The Pound’s performance against the US Dollar reflects market anticipation ahead of the BoE’s policy decision, with investors monitoring developments closely amidst ongoing economic uncertainties and inflation dynamics.
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