A critical week has begun for GBP traders as many economic events are due in the UK. Inflation, retail sales, and the annual budget release are just a few of the most relevant ones traders must watch.
Last Thursday, the Bank of England raised the interest rates again. The bank rate has now reached 0.75%, much higher than in continental Europe or the US.
However, in a strange twist, the British pound declined shortly after the rate hike. The reason was that the BoE is not sure if the rate hikes will continue, and would thus rather wait for more data to be released. Some of the numbers are coming as early as this week. Rising inflation is why the BoE raised the rates in the first place, so higher-than-expected inflation would put pressure on the central bank to hike again.
February’s Inflation Prognosis At 6% YoY
February’s inflation data is scheduled for release on Wednesday. The expectations are that the prices of goods and services have increased in the UK by 6% YoY, up from the 5.5% previously.
If inflation comes out higher than expected, then the British pound may bounce as traders increase their bets of further action from the BoE.
Speaking of the British pound, the GBP/USD exchange rate has found dynamic and horizontal support at 1.30. It traded as high as 1.32 on the day the BoE hiked the rate, but the bullish momentum faded.
While inside the bearish channel, the bias remains bearish for the GBP/USD pair. However, a daily close above 1.32 would trigger more upside towards the upper edge of the channel.
All in all, the British pound’s volatility is expected to increase sharply this week. Inflation data is key for future direction, and 1.32 is a pivotal level.