FX.co ★ GBP/USD stays firm following inflation report

The pound/dollar pair is resilient to market volatility triggered by the latest US inflation report. However, the US dollar looks stronger than the pound sterling.

After the publication of US inflation data, the greenback resumed a dizzying rally, strengthening across the board. It advanced considerably against the euro and the pound sterling. The British currency dipped to a low of 2021 following inflation data. Besides, the US economy is showing signs of weakness.

According to analysts, the economy of the United Kingdom has lost its momentum. The Office for National Statistics revealed a report showing that the UK economy grew by 0.6% in September. Besides, estimates for previous months were revised downward. Analysts noted a deterioration in the current economic situation compared to February 2020. The situation was aggravated by a surge in inflation in the United States. The figure approached the highest levels in three decades. The US dollar soared following this report as investors are now expected the Fed to raise the interest rate. However, analysts believe that in the near future the greenback is likely to ruse purely amid a drop in liquidity and risk appetite in markets.

At the November meeting, the Bank of England kept the interest rate at 0.1%. At the same time, the regulator left room for maneuver, hinting at possible monetary policy tightening if necessary. Experts assume that the BOE may hike the key rate in December unless some expected events occur.

Market experts are certain that the pound sterling is likely to regain ground if the regulator raises the interest rate. Dean Turner, an economist at UBS Global Wealth Management, stresses that it will be the main driver for the pound sterling's increase. Apart from that, the British currency may also win luster with investors if there are improvements in the labor market. The stabilization of the labor market is of high priority to the government, James Smith, an economist at ING Bank, points out.

On November 11, the pound sterling sank by 0.24% to 1.3365. This is the lowest level recorded since December 2020, experts emphasize. On the morning of Friday, November 12, the GBP/USD pair remained near this level, trading at 1.3367.

Judging by technical analysis, the GBP/USD pair may slow down its drop near the level of 1.3392, which is the area of multi-month lows. Later, the pair entered the consolidation phase. So, the pound sterling moved away from the moving averages with periods of 34, 55, 89, and 144. These indicators signal the continuation of bearish sentiment in the medium term.

Market participants expect a further weakening of the pound sterling due to the gloomy economic situation in the country. The UK is trying to mitigate the negative consequences of Brexit, which is weighing on the national currency. Investors are concerned about the further trade relations between the UK and Northern Ireland, as well as the European Union. British Brexit minister David Frost said that Brussels should stay calm and avoid embarking on "massive and disproportionate. "They seem to be claiming that it will be entirely unreasonable for the British government uniquely to use these wholly legitimate safeguard provisions ... they're also suggesting that we can only take that action at the price of massive and disproportionate retaliation. I gently suggest that our European friends should stay calm and keep things in proportion," Frost said. He also added that the Uk may trigger Article 16 as it could be Britain's only option.

Analysts suppose that inflation will not prevent the rise of key currencies in the medium and long term. The greenback has already soared. The euro is trying to climb as well. The pound sterling needs some drivers. Forex experts are sure that in the coming months, three will be plenty of reasons for the pound sterling to jump.