GBP – Sterling continues its steady recovery

The British pound (GBP) continued its modest recovery against the U.S. dollar on Wednesday, as traders digested UK producer price inflation data. However, GBP is still expected to rise by about 1.5% against the dollar this month, driven by fading expectations of a Bank of England rate cut and positive economic data. Bank of England Monetary Policy Committee (MPC) member Andrew Mann said on Tuesday that she sees a strong case for keeping Bank Rate on hold for an extended period, but is prepared to take aggressive rate cuts if downside risks to economic growth materialize. Preliminary official data released on Wednesday showed that UK producer price index (PPI) output prices rose 1.9% year-on-year in June, the highest increase in two years. A previous consumer inflation report showed that UK inflation rose to 3.8% in July, the highest in 18 months, from 3.6% in June. Money markets are pricing in around a 40% chance of a Bank of England rate cut before the end of the year.

GBP/USD encountered resistance around 1.36 mid-month, having previously encountered resistance at this level on July 23rd and 24th. Consequently, the pound has been gradually retreating in recent days. However, as the RSI and Stochastics indicators have flattened on the chart, further downward pressure on the pound is expected to be limited. Nearest support is expected at 1.3400 and 1.3340, followed by 1.3280 and the May low of 1.3137. Resistance is expected to return to 1.3530 and 1.36, with further resistance expected at 1.3680 and 1.3750, followed by 1.38. Estimated Range:
Resistance: 1.3530 - 1.3600* - 1.3680 - 1.3750 - 1.3800
Support: 1.3400 - 1.3340 - 1.3280 - 1.3137

This Week's News:
26/8
Bank of England's Mann: Interest rates should remain unchanged for a long time, with aggressive rate cuts if necessary

Focus:
Wednesday
UK August CBI Retail Sales Balance (6:00 PM)

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