Political Uncertainty & Lower Inflation Hit GBP
GBP Slips
GBPUSD remains under pressure today as the reversal from last week’s 1.3550 highs deepens. Despite rallying over the course of the build up to Andy Burnham’s appointment as PM, GBP turned lower yesterday as traders nervously watched the new PM’s first address. In it, Burnham said he intends to be more flexible with fiscal rules, marking a shift from the message in recent weeks and sparking uncertainty among UK investors. Today, bearish GBP sentiment deepened as the latest UK inflation reading came in below forecasts, marking a further decline. Headline annualised CPI fell to 2.6% last month from 2.8% prior, below the 2.7% the market was looking for. Headline inflation is now at its lowest level since March 2025 with a drop in motor fuel prices causing the biggest drag. Prices dropped almost 11% between May and June. However, given the sharp rally we’ve seen in crude in recent weeks this is expected to be short lived.
BOE Expectations
For now, however, the impact on GBP is clearly a reflection of weakened BOE tightening expectations in the face of a further decline in PCI. Inflation has now fallen twice over 4 months with two months in the middle unchanged, taking CPI down to 2.6% from 3.3% in March. While still above the BOE’s 25 target, the downward trajectory certainly suggests there is no pressure on the BOE to hike rates near-term and GBP stands to weaken further as traders scale back their BOE tightening expectations. The caveat to this is that if the current rally in oil prices continues, these hawkish expectations could quickly be rebuilt.
Technical Views
GBPUSD
The rally in GBPUSD has failed for now into the latest test of the triangle highs with price since reversing lower, now back beneath the 1.3446 level. Price is now testing the triangle lows which, if broken, will put focus on a return towards the 1.3165 level range-lows.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.