GBP/USD turns higher after sluggish UK inflation and public debt data

Written by: Crispus Nyaga
October 21, 2020
  • The GBP/USD pair is rising as the market reacts to UK inflation data.
  • Consumer prices in the UK rose by 0.5% in September while the core CPI rose by 0.6%.
  • Public borrowing continued to increase in the UK as the government continued to support the economy.

The GBP/USD is up by 0.2% as the market reacts to the UK inflation numbers, rising public debt, and the ongoing developments on Brexit. It is trading at 1.2976, which is higher than this week’s low of 1.2910.

GBP/USD reacts to UK inflation data

UK consumer inflation remains low

Consumer prices in the UK remained low in September as the country started to battle the second wave of the virus.

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The headline consumer price index (CPI) rose 0.5 year on year in September, according to the latest data by the Office of National Statistics (ONS). Analysts polled by Reuters had expected the CPI a rise of 0.5%. The prices rose by 0.4% on a month-on-month basis.

In the same month, the core CPI rose by 0.6% pushing it to a year-on-year rise of 1.3%. That was higher than the MoM decline of 0.6% and a year-on-year increase of 1.3%. The core CPI excludes the volatile food and energy prices.

The ONS attributed the current inflation numbers to a rise in prices in prices by restaurants and cafes. These companies hiked prices after the Eat Out to Help Out program ended. In a statement, the ONS said:

“Consumer behaviour responded to Eat Out to Help Out (EOHO) with a higher proportion of restaurant transactions than usual at the beginning of the week, during August 2020.”

Meanwhile, UK public borrowing remained at relatively high levels. The government borrowed more than £35.37 billion in September, up from the previous month’s £35.2 billion. The increase brings the total public debt to more than £2 trillion. This number came a few days after Moody’s slashed UK credit ratingas the country continued to borrow more.

Brexit negotiations continue

The GBP/USD price is also reacting to the latest developments on Brexit. In a statement yesterday, Michel Barnier, the chief EU negotiator, said that he was still holding out hopes of continuing talks with the UK. He said that the ball was in the UK side to decide whether to continue talking. The UK has said that it is not ready to have face-to-face talks with the EU.

Still, analysts believe that the two sides will reach a deal since the main issues have narrowed to just three. There are differences on fisheries, fair-playing field rules, and on government support for companies.

On fisheries, the EU has demanded that it needs to access the rich UK fishing waters where their fishermen catch more than 50% of their fish. On fair-playing field, the EU has demanded that the UK should set regulations that are in line with the EU. Finally, on government support, the EU wants the UK government not to give its firms unfair monetary support.

GBP/USD technical outlook

GBP/USD technical chart

The four-hour chart shows that the GBP/USD has been rising 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 averages (EMA). It is also along the first support of the Andrews pitchfork. Therefore, I suspect that the price will continue rising as bulls aim for the median line of the pitchfork at 1.3030. Start your trading journey by reading our free forex trading courses.