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GBP falls to 1.33 mark! Four major signals indicate that the exchange rate may turn around, and bulls’ last line of defense is facing a test
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Hello everyone, today XM Forex will bring you "[XM Foreign Exchange Decision Analysis]: The pound fell to the 1.33 mark! Four major signals indicate that the exchange rate may turn around, and the bulls' last line of defense is facing a test." Hope this helps you! The original content is as follows:
During the European trading session on Wednesday (October 22), the pound against the U.S. dollar fell to the 1.3310 line. The exchange rate fell rapidly by 60 points during the session, down 0.37%, and is currently trading around 1.3319. The pair has been trending lower for the fourth consecutive session. After the British inflation data was released, the pound fell rapidly in the short term, and the data confirmed that the current price pressure has reached a staged peak.
British inflation growth in September was lower than expected, putting the pound under pressure and weakening. British consumer price index (CPI) data showed that price pressure was less than market expectations, and the pound performed relatively weak among major currencies. The UK's core inflation rate unexpectedly fell back to 3.5% in September, while the overall inflation rate remained stable. At the same time, the optimism released by the Sino-US trade negotiations continues to provide support for the US dollar.
The Bank of England may take action if inflation exceeds its target.
The Bank of England has previously predicted that the inflation rate will hit a peak of around 4% in September and then gradually fall back. It is currently equivalent to achieving the target ahead of schedule.
Last week, Huw Pill, chief economist of the Bank of England, has called on other interest rate policymakers to be "more cautious" about future interest rate cuts. The core concern is that the inflation rate may remain stubbornly high. Here, the CPI has dropped more than expected, causing the inflation peak to appear earlier, which will increase the Bank of England's determination to further cut interest rates.
CPI presses pause, or reduces British government costs
The September inflation rate is usually used to determine the increase in many benefits, including universal credit, tax credits and disability benefits. This inflation rate is also triple the pensionThe key xmaccount.component of the protection mechanism (pensiontriplelock), this mechanism will determine the pension increase rate in April of the following year.
However, the pension increase needs to be determined from three aspects: first, the inflation rate in September, second, the average income growth from May to July, and third, 2.5%, and finally take the maximum of the three.
Given that the income growth has been confirmed to reach 4.8%, and the current inflation data does not exceed the income growth, the inflation rate will not be used as the benchmark for pension increases this time.
There are reports that the current Chancellor of the Exchequer is already focusing on filling the national fiscal gap. Finance Minister Reeves plans to launch a tax increase of up to 2 billion pounds on lawyers, family doctors and accountants by levying new fees on users of limited liability partnerships.
The reduction in government debt gives the government more room for maneuver.
In the United States
In addition, the strength of the US dollar index further amplified the weakness of the pound against the US dollar. As of press time, the U.S. dollar index (DXY), which tracks the U.S. dollar against six major currencies, was consolidating within a narrow range near Tuesday's high of 99.00, with relatively solid trading.
The market’s optimistic expectations that China and the United States are close to reaching a trade agreement have pushed the dollar upward slightly. The President of the United States has stated many times before that he is confident that the two countries can reach a fair agreement.
U.S. Senate Minority Leader Chuck Schumer revealed on Tuesday that he and House Democratic Leader Hakeem Jeffries have xmaccount.communicated with Trump and plan to negotiate the reopening of the government through talks.
Investors are focusing on delayed U.S. consumer price index (CPI) data for September released on Friday. The inflation data will have a key impact on market expectations about the path of the Fed's monetary policy.
Economists predict that the overall U.S. CPI year-on-year growth rate will rise to 3.1% from the previous 2.9%, and the core CPI year-on-year growth rate will stabilize at 3.1%.
Summary:
British CPI exceeded expectations and the dollar strengthened, triggering the downward concentration of the pound to release risks. The slowdown in inflation data gave British fiscal policy and interest rate policy a breathing space.
Subsequent interest rate cuts and tax increases will help the government better use the tools to regulate the market economy. The pound is expected to move out of a short-term and long-term trend. As the U.S. dollar index determines the path of interest rate cuts and the government shutdown is expected to end, U.S. dollar bulls are expected to cash in and leave the market, jointly driving the pound to turn around.
Technical analysis:
The daily chart of GBP/USD shows that the pound is still in a short position overall, with the 5, 10, 20, and 30-day moving averages arranged in a short position, and the large pattern also has the possibility of a long position, indicating that the market is betting on a possible interest rate cut in the UK. Support is around 1.3300, followed by 1.3248, with pressure around 1.3450.
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