The British pound is gaining strength after today's report on the consumer price index, which showed an increase in annual inflation in September this year, which is enough reason to believe that the British economy is feeling more or less confident. It is worth noting that the current inflationary pressure was formed after the completion of government assistance programs, which shows the real picture.
Pressure is still exerted by a number of categories of goods that are in low demand due to the coronavirus, as well as the decline in energy prices, which was recorded in the fall of this year. Given the current state of the UK economy and what lies ahead, we can't expect inflation to accelerate until the end of this year. However, there is also hope that a hard Brexit and the resulting fall in the British pound may spur inflationary pressure early next year.
According to today's report, consumer prices rose 0.5% in September compared to September last year, after rising 0.2% in August. The index was mainly supported by higher prices for transport services and prices in the catering sector. Compared to August of this year, when the index was immediately reduced by 0.4% due to the completion of a number of government programs, inflation compensated for all the fall, showing an increase of the same 0.4% in September. Economists had expected a jump of 0.5% immediately.
Today, a report was also published, which spoke about the growth of net borrowing by the UK public sector in September this year. This indicates that the public sector remains interested in loans. According to the data, the increase in borrowing amounted to 36.1 billion pounds. The increase in spending was also directly related to the cost of supporting the pandemic-affected economy.
As for the technical picture of the GBPUSD pair, the further direction of the pair depends entirely on the breakout of monthly highs in the area of 1.3080, which will open up a potential opportunity to reach the levels of 1.3150 and 1.3230. If the bears manage to protect the resistance of 1.3080, and there are plenty of factors that can put pressure on the British pound in the short term, it will be possible to wait for the British pound to stop falling only in the middle of the side channel 1.2980 or at its lower border in the area of 1.2865.
The probability of adopting a new package of measures to help the US economy may quickly end, as the chances of an agreement seem very slim against the background of the positions taken by Republicans and Democrats. Some want a more balanced package that will provide assistance, including to large corporations, including air carriers and small businesses. The second (Democrats) want to arrange a banquet on a "broad hand", and deal with the problems of the deficit and the growth of the national debt after all the problems in the economy will be solved again with the help of another bag of money, which according to immodest estimates for the past year amounted to more than 3.3 trillion US dollars. And this is only for one fiscal year. Now Democrats are fighting for another package, which will not be the last, and are pushing for its size of $ 2.2 trillion. In any case, if progress is made on this issue, the position of the US dollar will surely weaken, and the euro and pound will continue to grow. If everything ends in another failure, the optimism of market participants will probably decrease, which will pull down risky assets.
As for the technical picture of the EURUSD pair, a break of the next resistance of 1.1870 will open a direct road to the area of the highs of 1.1915 and 1.1970. If the bulls fail to get above the range of 1.1870, the pressure on risky assets may gradually return, which will lead to a downward correction to the support area of 1.1830 and 1.1800.
