The GBP/USD pair is rising as the market reacts to British inflation data.
UK consumer prices rose 0.5% in September, while the Core Consumer Price Index rose 0.6%.
Public borrowing in the UK continued to increase as the government continued to support the economy.
The GBP/USD rose by 0.2% as the market responded to UK inflation figures, rising government debt and ongoing developments in brexite. It is trading at 1.2976, which is higher than this week’s low of 1.2910.
GBP/USD reacts to British inflation data
Consumer inflation in Great Britain remains low
Consumer prices in the UK remained low in September as the country began to fight the second wave of the virus.
The Headline Consumer Price Index (CPI) rose 0.5 years in September compared to the previous year, according to the latest data from the Office of National Statistics (ONS). Analysts surveyed by Reuters had expected the CPI to rise by 0.5%. Prices rose by 0.4% month-on-month.
In the same month, the core CPI rose 0.6%, up 1.3% year-on-year. This was higher than the 0.6% decline in the MoM and a year-on-year increase of 1.3%. The core consumer price index excludes volatile food and energy prices.
The ONS attributed the current inflation figures to an increase in restaurant and café prices. These companies increased prices after the Eat-Out-to-Help-Out program expired. In a statement, the ONS:
“Consumer behavior responded to Eat Out to Help Out (EOHO) with a higher proportion of restaurant transactions than usual at the beginning of the week, in August 2020”.
Meanwhile, public borrowing in the UK remained at a relatively high level. The government borrowed over £35.37 billion in September, more than in the previous month (£35.2 billion). This increase brings total public debt to over £2 trillion. This figure came a few days after Moody’s lowered Britain’s credit rating as the country continued to borrow more.
Brexite negotiations continue
The GBP/USD price is also reacting to recent developments in Brexit. In a statement yesterday, the EU’s chief negotiator, Michel Barnier, said that he still had hopes of continuing talks with the UK. He said the ball was in the British side’s court to decide whether to continue the talks. The UK has stated that it is not prepared to have personal talks with the EU.
Nevertheless, analysts believe that the two sides will reach an agreement as the main issues have been reduced to just three. There are differences in fisheries, rules for fair competition and government support for businesses.
On fisheries, the EU has demanded that it must have access to the rich British fishing waters where its fishermen catch more than 50% of their fish. On fair competition, the EU has demanded that the UK should adopt rules that are in line with the EU. Finally, on state support, the EU wants the UK government not to give unfair financial support to its companies.
Technical outlook GBP/USD
Technical Table GBP/USD
The four-hour chart shows that the GBP/USD has gone up in the past two days. The price is slightly below the 38.2% Fibonacci retracement level and slightly above the 15-day and 25-day exponential moving average (EMA). It is also on the first support of the Andrews pitchfork. Therefore, I suspect that the price will continue to rise as bulls target the median line of the pitchfork at 1.3030. Start your trading journey by reading our free Forex trading courses.