Is GBP/USD a buy or sell as UK and US bond yields rise?

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 Jan 19, 2022
  • The GBP/USD pair is under intense pressure lately.
  • It has dropped by 1.10% from last week’s high.
  • We explain what to expect as UK and US bond yields rise.

The GBP/USD price moved sideways after the strong UK consumer price index (CPI) data. The pair is trading at 1.3597, which is about 1.10% below the highest level last week.

UK consumer inflation jumps

On Tuesday, the Office of National Statistics (ONS) published strong jobs data from the UK. The data revealed that the unemployment rate continued its downward trend in November. It currently stands at about 4.1%, which was the lowest point since the pandemic started.

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And on Wednesday, the agency published strong consumer inflation data. The headline CPI figure moved from 5.1% in November to 5.4% in December. This was a higher increase than the median estimate of 5.2%. On a month-on-month basis, the data revealed that the country’s inflation fell from 0.7% in November to 0.5% in November.

Inflation also rose while excluding food and energy prices. According to the ONS, the core consumer price index rose from 4.0% in November to 4.2% in December. Economists were expecting the number to show that the price retreated to 3.9%.

Interestingly, producer inflation declined in December. The producer price index input declined from 15.2% to 13.5% in December. Its output declined from 9.4% to 9.3%.

The GBP/USD pair likely moved sideways because investors believe that inflation may have peaked in December. Some believe that prices will start normalizing in the first or second quarter of the year.

Additionally, the pair moved sideways as worries of the rising government bond yields rattled the market. In the US, the 10-year bond yield rose to 1.892% while the 30-year yield rose to 2.20%. The same trend is happening in the UK, where the 10-year Gilt has risen to the highest level since 2018.

GBP/USD forecast

GBP/USD

The GBP/USD pair has been in a bearish trend in the past few days. On the four-hour chart, we see that the pair managed to move below the ascending trendline shown in black. It also moved below the 25-period and 50-period moving averages. A closer look shows that the two are about to make a bearish crossover.

Therefore, for now, the path of the least resistance for the pair is lower, with the next key support to watch being at 1.3560, which is along the first support of the standard pivot point.

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