The sharp decline in UK headline inflation seen on Wednesday brought widespread selling pressure for the pound, with GBPCHF no exception. That welcome decline saw CPI fall to 7.9% for June, following an 8.7% May reading. However, traders should be cautious about jumping straight on the bearish bandwagon for the pound. Adjustments over market pricing appear to have shifted expectations towards a 25-basis point hike from the Bank of England, following weeks of anticipation over a likely 50bp move. However, the sticky nature of inflation in the UK is highlighted by the mere 0.2% decline in core CPI (to 6.9%), despite still having a long way to go before inflation can be considered under control.
The BoE needs to act decisively, and this could be a prime opportunity to show markets just how serious they are about driving down prices. It is also notable that a strong pound serves to drive the cost of imported goods lower, thus helping the disinflation push. With that in mind, a 50-basis point hike could represent a good option at the August meeting.
As such, this short-term decline in the pound looks likely to find buyers soon, with GBPCHF providing one notable market to consider. With price having declined into a crucial zone of historical support, there is a strong chance we see the bulls start to come back into play. The long lower shadows evident both yesterday and today signal the potential for an uptick from here. Meanwhile, the oversold RSI has hit a 10-month low, highlighting the overstretched nature of the current price.
A decline through 1.0989 support would be required to exit this nine-month range.
The BoE needs to act decisively, and this could be a prime opportunity to show markets just how serious they are about driving down prices. It is also notable that a strong pound serves to drive the cost of imported goods lower, thus helping the disinflation push. With that in mind, a 50-basis point hike could represent a good option at the August meeting.
As such, this short-term decline in the pound looks likely to find buyers soon, with GBPCHF providing one notable market to consider. With price having declined into a crucial zone of historical support, there is a strong chance we see the bulls start to come back into play. The long lower shadows evident both yesterday and today signal the potential for an uptick from here. Meanwhile, the oversold RSI has hit a 10-month low, highlighting the overstretched nature of the current price.
A decline through 1.0989 support would be required to exit this nine-month range.