Sterling lost ground against a broadly stronger Dollar during Monday’s trading session, with prices dipping towards 1.2950, as the ongoing uncertainty surrounding Brexit weighed heavily on the currency.
Today’s main focus and event risk for the Pound, will be the highly anticipated inflation report from the United Kingdom. The report could offer some fresh clues on when the Bank of England will raise rates. Markets are expecting consumer prices in the UK to rise at an annual rate of 2.7% in July, following June’s unexpected slowdown when depressed global oil prices lowered the cost of petrol. An inflation figure that meets or exceeds the 2.7% estimate, is likely to rekindle expectations of the BoE raising rates – which will ultimately support the Pound.
Rising inflation, subdued wage growth and Brexit uncertainty, have left the BoE in a tight spot and it will be interesting to see how the central bank solves this complicated jigsaw of events. Although raising interest rates to cool inflation is seen as a practical strategy, it may end up pressuring borrowers and pinching consumers further.
The British Pound has been pressured this year by political risk and soft economic fundamentals, and may be instore for further punishment as the Brexit uncertainty persists. From a technical standpoint, the GBPUSD is coming under increasing pressure on the daily charts, with 1.3000 acting as a psychological resistance. A breakdown and daily close below 1.2950 should encourage a further depreciation towards 1.2850.