GBP/USD forecast as BOE chief economist issues warning on inflation

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Oct 22, 2021
  • The GBP/USD pair has been in a strong bullish trend lately.
  • The pair is hovering near its highest level since September.
  • BOE chief economist warned that inflation could rise to 5.0%.

The GBP/USD price is hovering near the highest level since mid-September after the Bank of England (BOE) chief economist issued a major warning on inflation. The pair is also waiting for the latest UK retail sales data. It is trading at 1.3800, which is slightly below this week’s high of 1.3835.

UK inflation and retail sales

Earlier this week, the UK published relatively weak consumer inflation data. The numbers showed that the headline consumer inflation data declined to 3.1% in September. This decline was slightly lower than what most analysts were expecting. The data was above the Bank of England’s target of 2.0%.

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However, there are expectations that the country’s consumer price index will keep rising as the energy crisis continues. 

In a statement, the new BOE Chief Economist, Huw Pill, said that the country’s inflation rate could climb to “close to or even slightly above 5%” in 2022. He then said that the bank will have a live decision on when to hike rates in its November meeting. 

The statement came a few days after the BOE governor, Andrew Bailey, said that the bank will have to act to keep a lid of inflation. Therefore, some analysts believe that a rate hike could come as soon as in November.

The GBP/USD top movers will be the latest UK flash manufacturing PMI and retail sales numbers. Economists expect the data to show that the headline retail sales rose from -0.9% in August to 0.5% in September. On a year-on-year basis, however, the sales are expected to have dropped from 1.9% to -0.4%.

Core retail sales, which excludes the volatile food and energy, ae expected to have increased by 0.2% in September. They are expected to have dropped to 1.7% in September. Markit will also publish the October flash PMI data.

GBP/USD forecast

GBP/USD

The GBP/USD pair has moved sideways in the past few days. The pair has declined from 1.3835 to 1.3800. It remains slightly above the important support at 1.3750, which was the highest level on September 23rd, The pair remains above the 25-day and 50-day moving averages.

Therefore, the pair will likely have a break and retest pattern, where it retests the key support at 1.3750 and then resume the bullish trend.

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