UK still facing price pressure

The UK economy has been experiencing a consistent increase in retail sales in April, despite having one of the highest inflation rates in Western Europe, at 10.1% in March and five times the central bank's 2% target, resulting in buyers spending less money. The Bank of England (BoE) anticipates that price hikes will halt by the end of the year.

Specifically, the price of food and non-alcoholic beverages jumped 19.1% year on year in March, the largest increase since 1977. While British construction activity increased marginally in April due to robust commercial building during the previous six months, which was driven by a strengthening British economy and a recovery in business optimism, there was the largest reduction in residential projects since May 2020, owing to weakening demand and increased mortgage rates.

Following the global financial crisis, supply chain pressure in the United Kingdom improved the most since 2009. Although higher energy and building material prices continue to put pressure on costs, production cost inflation is at its lowest level since November 2020.

However, after a dramatic downturn due to market instability, the UK housing market has shown indications of revival in recent weeks. According to figures issued by the Bank of England on Friday, mortgage applications in March were the highest since October 2022, while home prices increased 0.5% month on month in April after a seven-month fall.

Meanwhile, the UK services sector grew at the quickest rate in a year in the second quarter. The S&P Global/CIPS Purchasing Managers' Index (PMI) climbed to 55.9 in April from 52.9 in March, driven by domestic demand and improved export sales, particularly an increase in foreign tourists. However, there is still a problem with quickly passing on the cost of higher wages to consumers. According to BoE surveys, firms are still refusing to change their selling prices in April, despite lower expectations for wage growth and inflation next year.

British employment has increased for four months running. The outlook for business was the best it has been in 13 months, with 52% of companies seeing substantial growth in economic activity in the coming year, which put more pressure on the Bank of England to change the course of its monetary policy.

Markets anticipate that the BoE will raise interest rates to 4.5% next week, bringing the interest rate hike to a close, despite the fact that labor-market inflationary pressures persist. The terminal interest rate in the United Kingdom is predicted to be 4.75% or 5% later this year.

The dollar strengthened on Tuesday because the market is still more interested in inflation data than the debt ceiling solution to assess the economic outlook and the likelihood of Federal Reserve interest rate hikes, which will cause the pound to rise slightly while the dollar's uptrend will remain limited during this period.

Data for Technical Analysis (5H) CFD GBP/USD

Resistance : 1.2634, 1.2638, 1.2646

Support : 1.2620,1.2616, 1.2608                          

5H Outlook

1H Outlook

Source: Investing.com           

Buy/Long 1 If the support at the price range 1.2615- 1.2620 istouched, but the support at 1.2620 cannot be broken, the TP may be set around 1.2638 and the SL around 1.2610, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.2634 - 1.2639, TP may be set around 1.2650 and SL around 1.2615, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.2634 - 1.2639 is touched, but the resistance 1.2634 cannot be broken, the TP may be set around 1.2619 and the SL around 1.2644, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.2615 - 1.2620, TP may be set around 1.2606 and SL around 1.2638, or up to the risk appetite.       

Pivot Points May 10, 2023 02:55AM GMT

Sources: Investing 1, Investing 2