FX.co ★ Global macro overview for 23/05/2018

Hard times are coming for the British pound. This currency is still losing attractiveness for investors, being under pressure on two fronts simultaneously - political and economic.

Recent weak PMI readings and the stagnation of lending suggest that from the beginning of this year the upward momentum of the British economy is about to expire. In addition, today's inflation data release does not suggest either a baseline improvement in the economic situation. Recently, inflation from the United Kingdom grew under the influence of GBP depreciation. Now, however, when this process runs out of CPI, although minimal, but falls below expectations, approaching the level in 2.0% percent. Therefore, the probability of the interest rate increase in August being valued by the currency market remains below 0.5. The only thing that could strengthen (temporarily) the British pound is the tightening of the BoE monetary policy, which will not happen in the near future as a result of growing uncertainty around Brexit and weak inflation readings. Without a rate hike, GBP remains unattractive to investors. Today, the British pound reaches the lowest level since January - 1.335 USD.

Let's now take a look at the EUR/GBP technical picture at the H4 time frame. The EUR/GBP currency pair has been growing since Monday, despite the downward pressure on the euro, which is exerted by Italy and today's weak macroeconomic readings from Eurozone. The market has made a big pin bar candle as the bulls have been trying to protect the support at the level of 0.8727 and remain in control over the market. The key level to the upside is seen at 0.8792 and only a sustained breakout above this level will open the road toward the swing highs at 0.8844. Otherwise the horizontal consolidation will continue with a growing bullish bias.