Sterling's 100-DMA tested, daily cloud top at 1.2596 in focus
GBP/USD fell below 100-DMA support at 1.2640 to a 5-week low at 1.2622 on Friday and is likely to extend these losses as bears target the daily cloud top at 1.2596 and 200-DMA at 1.2558 following soft UK PMI data and dovish BoE rate expectations.
Sterling has fallen from June 12 highs by 1.2860 since after the Fed delivered a hawkish hold, and downside momentum picked up after Thursday's dovishly presented BoE decision to keep rates steady.
The slope of U.S. and UK inflation reduction may highlight upcoming UK-U.S. rate divergence.
Since September, the downward slope of UK inflation has measured 33 degrees, versus a more modest 12 degrees for U.S. price growth over the same period.
With U.S. inflation and growth relatively strong, the Fed is likely to keep rates high-for-longer. Market expectations of BoE policy is shifting with some seeing a 5-4 or 6-3 vote at the August MPC, if UK inflation and growth data remains on its current trajectory U.S. and UK rate paths may uncouple adding to GBP weakness.
For more click on FXBUZ
UK-US core CPI w/Slope Chart: https://tmsnrt.rs/3VQXG1k
GBP Chart: https://tmsnrt.rs/45CjjG6
(Paul Spirgel is a Reuters market analyst. The views expressed are his own)
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