By the end of this week, the pound sterling is trading mixed. On the one hand, bears are trying to take control. On the other hand, bulls are waiting for even the slightest weakness of bears to push the pound sterling higher.
On Thursday, August 19, the pound/dollar pair showed signs of a decrease. During the session, the pound sterling moved away from the moving averages with periods of 34, 55, and 89. It signals the downward movement and the continuation of the bearish trend. Later, the pound/dollar pair broke through the mirror level of 1.3712, which opened the way to the level of 1.3674 and then to 1.3668.
According to experts, the bearish trend began after a false breakdown of the 1.3673 level. At this moment, the pound sterling sharply went up, moving to a strong resistance zone of 1.3980–1.4000. Yet, it is still trying to maintain the bullish momentum. However, a predictable pullback followed, as sellers had to defend their positions at this level. Currently, experts recommend selling the pound sterling with medium-term levels of 1.3230-1.3200.
Possible changes in the current monetary policy of the Bank of England may also adversely affect the pound sterling. Currently, high inflation risks persist in the UK. this is why re regulator may be forced to take a hawkish stance, tapering the bond-buying program. Analysts are counting on the implementation of this scenario, especially after the release of the latest inflation data. In July 2021, the consumer price index remained unchanged. Annual GDP decreased to 2%. Importantly, in May 2021, the figure totaled 2.1%, and in June 2.5%.
Experts assume that the Bank of England has been able to achieve the inflation target of 2%, but it is too early to rejoice. This happened amid a positive short-term fundamental factors that have almost disappeared. At the same time, other inflation indicators signal continuing pressure on the market. These include the retail price index, which increased by 0.5% for the month and by 3.8% for the year. The growth of this indicator is bolstered by rising producer price inflation. In July of this year, the producer price index climbed to 4.9% year - on-year, and selling prices to 9.9%.
The current reports on inflation in the UK exceeded expectations. Macroeconomic data indicate an accelerated price growth, which will have a positive impact on the pound sterling in the future. The pound sterling need to break out of the downward channel as the GBP/USD pair fell below the 200-day moving average. This is the key trend line. The pair has not dropped below this level since July 2020. Analysts are confident that the pound sterling will be able to rise despite the current difficulties in the market.
