GBPUSD: Will Bank of England’s Higher for Longer Stance Be Enough to Shield Sterling from Global Turmoil?

Sterling or Stagflation: Can the Bank of England’s Hawkishness Defend the 1.3440 Floor?

Update on UK’s inflation rate yesterday.

Inflation rate came out 3.3%. Energy costs driving the figures higher and this may suggest that the Bank of England may have to maintain higher for longer stance.

The next data will show more of the impact from the Iran war, is due on 20 May. This means this could be more severe as expected as preparation.

FUNDAMENTALS AFFECTING THE STERLING

Difference of Purchasing Managers’ Index Manufacturing and Services

PMI Manufacturing- refers to the goods or production area examples are electronics, vehicles, chemicals mostly driven by supply chain logistics or raw materials costs. The output is measured by volume of production by factories.

PMI Services- refers to the intangibles like retail, financial services or healthcare mostly driven by consumer demand. The output is measured by business activity levels

S&P GLOBAL MANUFACTURING PMI (PURCHASING MANAGERS' INDEX)

S&P GLOBAL SERVICES PMI (PURCHASING MANAGERS' INDEX)

Trend- the bar chart and table show that while the UK services sector has remained in expansionary territory (above 50), it has recently begun to trend lower, moving closer to the 50-point neutral line.

Shows the 60-minute price movement for GBP/USD last March 24th release. The price saw high volatility but ultimately trended downward most likely due to the miss (51.2 vs. 53.0).

Overlays the PMI data points against the broader GBP/USD exchange rate trend, reveals if the currency generally strengthens when the services sector expands.

When the UK Services PMI comes in Over Forecast (better than expected), the GBP/USD has a high historical probability (81.82%) of rising within the first hour of the release. Alternatively, Under Forecast releases lead to much more mixed results for the currency.

What momentum do we expect from the pair?

• 1st Resistance 1.3597
• 2nd Resistance 1.13700 beyond the 61.8% of Fibonacci Retracement
• 1st Support 1.3479 based on the 4-hour chart frequency since April
• 2nd Support 1.34133 if any breaking news during New York session
• Relative Strength Index at 55

Conclusion & The ACY Edge

The pair is in neutral to bullish driven by inflation as a support.

Sterling is currently seen more adaptability than the Euro, mostly driven by sticky inflation data.

Macroeconomic indicators may take a minor role today as the market stays more focusing on geopolitical issues. Any shifts relevant to the Strait of Hormuz or the Islamabad negotiations could trigger sudden swing movements in the Dollar.

Disclaimer: This content may have been written by a third party. ACY makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplies by any third-party. This content is information only, and does not constitute financial, investment or other advice on which you can rely.