British Pound Shrugs Off Blistering CPI: What’s Next for GBP/USD, EUR/GBP, GBP/JPY?

GBP, British Pound, Euro, Japanese Yen, US Dollar – Outlook:

• GBP/USD slipped even as inflation moderated less than expected.
• Chance that GBP’s consolidation could extend a bit further in the near term.
• What are the signposts to watch in GBP/USD, EUR/GBP, and GBP/JPY?

The British pound’s rally against some of its peers has stalled recently, and chances are that the consolidation could extend a bit further in the short term.

UK macro momentum has been solid as reflected in the two-year high readings of the UK Economic Surprise Index. Data released on Wednesday showed inflation moderated by much less than expected in April, leaving the door open for another BOE rate hike next month. However, the subdued reaction in GBP to the recent upbeat data suggests much of the optimism could well be baked in the price.

Moreover, the deadlock in Washington over raising the debt limit and the scaling back in expectations of a Fed rate cut this year after hawkish remarks from several Fed officials have provided an excuse to unwind some GBP longs given the extent and the pace of the rise since late 2022.

GBP/USD Daily Chart

Chart Created by Manish Jaradi Using TradingView

On technical charts, GBP/USD’s trend has moved to a bearish phase in the short term, as the colour-coded 240-minute candlestick charts based on trending / momentum indicators show. Any break below the immediate cushion at the mid-April low of 1.2350 could open the downside toward 1.2200.

GBP/USD 240-minute Chart

Chart Created by Manish Jaradi Using TradingView; Notes at the bottom of the page.

In the past couple of weeks, there have been signs of loss of steam in GBP/USD’s rally (see “A Reversal or a Dead-Cat Bounce in US Dollar? EUR/USD, GBP/USD, USD/JPY”, published May 17. This follows a retreat earlier this month from a slightly upward sloping trendline from 2022 (see the weekly chart).

GBP/USD Weekly Chart

Chart Created Using TradingView

From a medium-term perspective, the rise this month to a one-year high earlier this month confirmed the higher-tops-higher-bottom sequence since late 2022, leaving open the door for some medium-term gains. (see “British Pound Buoyant Ahead of BOE: How Much More Upside?”, published May 8). However, recent signals on charts suggest GBP may need to consolidate / retreat a bit before the next leg higher.

GBP/JPY Daily Chart

Chart Created Using TradingView

GBP/JPY: Rally could pause

GBP/JPY’s rally appears to be running out of steam in the very near term as it tests a key ceiling around the October high of 172.10. No threat to the five-month-long uptrend, but the evolving price action on the daily and weekly charts suggests the cross may need to consolidate/retreat a bit before it embarks on the next leg higher. However, the mid-May low of 167.85 could provide a solid floor.

EUR/GBP Weekly Chart

Chart Created Using TradingView

EUR/GBP: Downtrend fatigue?

EUR/GBP’s losses have stalled following the break below key horizontal trendline support at about 0.8725, raising the prospect of a minor bounce. However, the broader bias remains down, potentially toward the December low of 0.8545.

Note: In the above colour-coded chart, Blue candles represent a Bullish phase. Red candles represent a Bearish phase. Grey candles serve as Consolidation phases (within a Bullish or a Bearish phase), but sometimes they tend to form at the end of a trend. Note: Candle colors are not predictive – they merely state what the current trend is. Indeed, the candle color can change in the next bar. False patterns can occur around the 200-period moving average, or around a support/resistance and/or in sideways/choppy market. The author does not guarantee the accuracy of the information. Past performance is not indicative of future performance. Users of the information do so at their own risk.

— Written by Manish Jaradi, Strategist for DailyFX.com

— Contact and follow Jaradi on Twitter: @JaradiManish