British inflation surpassed the Bank of England's target of 2% last month, official figures released on Tuesday showed. The Office for National Statistics reported that consumer prices advanced 2.3% in February, following the preceding month's 1.8% increase and surpassing analysts' expectations for a 2.1% climb. Soaring inflation and the weak British Pound may force the Central bank to raise interest rates in the upcoming months. Last week, Kristin Forbes, an external member of the BoE's MPC, was the only one to vote for a rate hike at the March policy meeting. However, other members signaled they could step on the path of rate increases anytime soon if consumer prices continue rising and the economy maintains a strong foothold. Back in February, the annual rate of inflation in the UK rose above the BoE's target for the first time in more than three years, but the Governor Mark Carney claimed that it was important not to overreact to just one data point.
Meanwhile, the core annual inflation rate came in at 2.0% in February, compared to January's 1.6% gain, while analysts anticipated an increase of 1.7%. The rise in both headline and core inflation was driven by the weak Pound, which also provided significant support to British manufacturers, making them more competitive in overseas markets.
Yellen's Speech due today
GBP/USD takes another shot at conquering 1.25
In spite of strong volatility, the Cable managed to remain relatively unchanged on Wednesday, retaining its position above the monthly PP. The Pound keeps taking advantage of the Buck's weakness due to lower US Treasury yields, therefore, another positive outcome and a surge beyond 1.25 is possible. The GBP/USD pair has only one solid resistance on its path, namely the cluster around 1.26, which could prevent the Sterling from reaching its target—the 23.60% Fibo at 1.2672. Nevertheless, today's bullish potential is likely to be very limited, as there are no strong market movers present. Meanwhile, technical studies are also unable to confirm the possibility of a positive outcome.
Daily chart
Hourly chart
Traders mostly bullish
Today 63% of traders are long the Pound (previously 60%), but the share of sell orders is significantly higher, taking up 71% of the market.
A slightly less optimistic situation is observed elsewhere. For example, 55% of positions open at OANDA are currently long. This is more than the share of shorts (45%), barely sufficient for the sentiment to be called bullish. Meanwhile, sentiment at Saxo Bank is close to equilibrium, with 53% of traders now being long and the other 47% being short the Sterling against the US Dollar.
Spreads (avg, pip) / Trading volume / Volatility
Traders still indecisive
By the end of the next three months traders expect the Cable to fall under the 1.22 major level, as 51% of survey participants believe so. While the current price is around 1.23, the average forecast for June 23 is 1.227. The 1.14-1.16 range is now the most popular price interval, having 15% of the votes, while on the second place is the 1.30-1.32 price range, with 13% of poll participants choosing it. Furthermore, the 1.16-1.18, the 1.20-1.22 and the 1.28-1.30 intervals were each chosen by 11% of the voters.