The pound declined against the greenback yesterday despite the announcement of better-than-anticipated UK consumer prices index data for February. The US new home sales data for February also missed estimates. The recent US rate hike of 25 basis points and accompanied hawkish statement by the Federal Reserve has increased the market’s expectations for a 50 basis point rate hike in the next policy meeting. Specifically, the Federal funds rate futures indicated a 63% likelihood of a 50 basis points rate hike in May. This will effectively take the benchmark rate to 0.75%-1.00%. This scenario and the ongoing Ukraine-Russia war have increased the bets on the US dollar.
The market is expecting the BoE (Bank of England) to go for a strong rate hike as the UK inflation is forecast to hit 8% this spring. Any hint from the BoE regarding further rate hikes will again strengthen the pound. Until then, the US dollar is expected to have an edge against its rivals. Overall, the GBP/USD pair declined from a high of 1.3300 to a low of 1.3180 in the past 24 hours.
The ONS stated that the UK’s consumer prices index (CPI) rose by 6.20% y-o-y in February, from 5.50% in the prior month, and surpassed the 6% annual inflation anticipated by economists. The reported inflation is the highest since March 1992. The increase was mainly led by a rise in the cost of housing and household services such as electricity, gas, and other fuels, owner occupiers’ housing costs, and transport.
On a m-o-m basis, the consumer prices index (CPI) increased 0.80% in February, following a decline of 0.10% in the previous month.
Excluding volatile goods, such as food and energy, the core consumer prices index (CPI) grew by 5.20% y-o-y in February, from 4.40% rise in January and greater than the 5% increase anticipated by economists.
In a separate news release, the ONS stated that the UK’s PPI (producer price index) input price inflation was 1.40% in February, a decrease from 1.50% in January, but higher than the reading of 1.20% anticipated by economists.
On a y-o-y basis, PPI input price inflation was 14.70% in February 2022, an increase from 14.20% in January 2022 and surpassing market forecasts of 13.90%.
Out of 10 product groups, five of them recorded upward contributions to the changes in the yearly rate. Specifically, crude oil contributed the largest growth of 0.31%.
Also, on a m-o-m basis, the PPI output price inflation was 0.80% in February, a decrease from 1.20% in January.
On a y-o-y basis, the PPI output price inflation was 10.10% in February 2022, an increase from 9.90% in January 2022. The stated figure reflects the highest rate since September 2008.
Out of 10 product groups, six of them posted upward contributions to the change in the yearly rate. In particular, transport equipment and other manufactured products posted the most significant growth of 0.13% and 0.12%, respectively.
According to the US Census Bureau, the country’s new home sales (single-family houses) declined to 772,000 units in February, from 788,000 units in the prior month and disappointed economists who were anticipating an increase in the new home sales to 809,000 units. The reported figure is 6.20% below the February 2021 reading of 823,000 units.
The median sales price of new houses was $400,600 in February, while the average sales price was $511,000. Notably, the number of new houses available for sale at the end of February was 407,000 units, representing a supply of 6.30 months at the prevailing sales rate.
The hawkish statement made by the US Fed last week is likely to keep the GBP/USD pair range-bound with a slight bearish bias.
The historical price chart reveals that the GBP/USD pair is declining after facing resistance at 1.3300. The next major support is expected only near 1.3080. Also, the currency pair is trading below its 50-day moving average, while the stochastics indicator is declining towards the bearish zone. Therefore, we are expecting the currency pair to stay in a downtrend in the short term.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
