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GBPUSD: downside risks are still there
Forex
09/19/2018

GBPUSD: downside risks are still there

The pound briefly jumped to fresh two-month high of 1.3175 in a knee-jerk reaction to strong UK inflation data.

The pound briefly jumped to fresh two-month high of 1.3175 in a knee-jerk reaction to strong UK inflation data. The headline consumer price index rose to its highest levels in six months and was a surprise for markets. However, GBPUSD failed to sustain gains and partially retreated, in part due to the fact that there was much summer-related boost to the CPI for August.

But let’s not forget that sterling receives a decent support from positive Brexit comments recently, from both sides. As such, further signs of moving closer to the deal and any substantial progress in negotiations between the EU and UK will help to underpin the pound down the road. And now, as the inflation has accelerated, the Bank of England rate hike expectations could increase, which is also supportive for the pound.

But the bullish scenario could be derailed as the greenback may rise across the board in pre-positioning for Fed rate decision due in a week. And this factor could serve as a driver for profit-taking in the GBPUSD pair should the negotiators fail to reach a meaningful progress in the coming days. Technically, the pair continues to target the 1.32 level, but could reverse gains and get back below 1.31 as dollar demand is expected to pick up.

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