GBP/USD Prices, Charts, and Analysis
- Tumbling Gilt yields pull Sterling-pairs lower.
- GBP/JPY testing short-term support again.
UK inflation fell to its lowest level in over a year Wednesday and came in below market expectations. Headline CPI rose by 7.9% in the 12 months to June 2023, down from 8.7% in the previous month, and down from a peak of 11.1% in October 2022. Transport, furniture and household goods, restaurants and hotels, and food prices all fell, according to the Office for National Statistics (ONS).
UK (GBP) Breaking News: UK CPI Miss Troubles Pound
UK government bond yields fell sharply after the ONS release as traders started to recalibrate future interest rate hikes. Before the release, financial markets were looking at a terminal UK Bank Rate - currently 5% - in excess of 6%, but these expectations fell to around 5.75% during the morning, sending rate-sensitive UK 2-year Gilt yields sharply lower. With Inflation expected to fall further in July due to a lower Ofgem Energy Price Cap, it may well be that the UK has already seen peak rates.
UK 2-Year Gilt Yields
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After having made a 1.3141 double-top last week, cable’s highest level since April 2022, GBP/USD is back below 1.2900 against the US dollar. The greenback in itself remains weak ahead of next week’s FOMC policy decision, so the two currencies may cancel each other out over the next few days. Cable should find short-term support around 1.2850 and 1.2742 ahead of the Fed.
GBP/USD Daily Price Chart – July 20, 2023
| Change in | Longs | Shorts | OI |
| Daily | -8% | 0% | -4% |
| Weekly | 64% | -31% | -6% |
GBP/USD Retail Traders Remain Net-Short
Retail trader data show 38.83% of traders are net-long with the ratio of traders short to long at 1.58 to 1.The number of traders net-long is 10.57% higher than yesterday and 30.31% higher than last week, while the number of traders net-short is 8.78% lower than yesterday and 16.61% lower than last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/USD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBP/USD price trend may soon reverse lower despite the fact traders remain net short.
GBP/JPY is currently trading around 15% higher this year on a combination of Sterling strength and Yen weakness. The Bank of Japan (BoJ) remains an outlier amongst major central banks, keeping monetary policy accommodative while peers have been raising borrowing costs. The Yen got a small boost earlier today after the latest trade surplus data beat expectations by a healthy margin.
USD/JPY, EUR/JPY Price Forecast: Yen Higher Following Trade Surplus in June.
GBP/JPY is now testing short-term support around 179.48 with the pair printing five lower lows in a row. Below here the 50-day simple moving average (blue line) at 177.68 comes into play followed by the 23.6% Fibonacci Retracement level at 177.03.
GBP/JPY Daily Price Chart – July 20, 2023
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