GBPUSD Flattens After Largest Single-Day Loss in 6 Months

Summary:
• US CPI figures released on Wednesday raised prospects of higher-for-longer interest rates, with a June cut looking the more unlikely.

GBPUSD traded flat in the Asian session on Thursday, with the intraday rate at 1.2544. The pair is under pressure following a higher-than-expected US inflation reading.  On Tuesday, the pair registered its largest single-day loss since mid-October 2023, underlining the impact of inflation data on the strength of the dollar amid dwindling expectations of a June rate cut.

US headline inflation rose by 0.1% to 0.4% month-on-month in March, beating the forecast 0.3%. Similarly, the CPI beat the forecast year-over-year figure by 0.1% to read 3.5%. The Core CPI (excluding food and energy prices) came in at 0.4% month-on-month, exceeding the forecast 0.3%.  These figures are well above the Fed’s preferred rate of 2%.

With the US economy still heating up, it is increasingly unlikely that the Fed will announce three interest rate cuts in 2024. Meanwhile, the pound gets support from better-than-expected RICS House Price Balance, which came in at -0.4% versus the forecast -0.6%.  

Elsewhere, BoE Monetary Policy Committee (MPC) member Megan Greene’s comments on Thursday add to the downward pressure on the pound. According to Greene, the UK’s services PMI is still “much higher” than the US PMI. With the UK economy still struggling to come out of a recession, it is likely that the BoE will cut interest rates earlier than the Fed.  Later in the day, the GBPUSD pair will get volatility from the initial jobless claims data and US Producer Price Index (PPI) data. The PPI will particularly carry greater weight in view of Wednesday’s CPI reading, as it will give a broader perspective of the inflation trajectory.

Technical analysis

The GBPUSD pair pivots at 1.2565, and the downside will prevail as long as resistance remains at that level. That could see the pair break the support at 1.2523 in extension and possibly test 1.2482. On the other hand, a move above 1.2565 will favour control by the buyers. This could see them breach the resistance at 1.2597 in extension, which would negate the downside narrative and possibly see the pair test 1.2637.