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Following the release of the hot inflation data, there was an initial increase in the pound, resulting in GBP/USD reaching a peak of 1.2802. However, this increase was short-lived, as discussed in this article. As previously stated, the data is not expected to have a significant impact on the pound or the UK rates outlook in the near future.

Traders have already priced in a terminal rate of close to 6% coming into today and the bank rate is only at 4.50% at the moment, before tomorrow’s expected rate hike. In other words, there is still a long way to go and who knows how things will play out on the inflation front in a couple of months’ time.

We have witnessed how markets can rapidly change their perspective on central banks, as demonstrated by the example of the Federal Reserve. A mere five weeks ago, the discussion revolved around three potential rate reductions, but now we are discussing the possibility of no cuts for the remainder of the year.

It appears that traders are not very confident in front-running today’s UK inflation data, and this lack of conviction is becoming evident.

The UK economy is facing increased pressure from persistent pricing, which is causing a potential risk of stagflation. This is a concern not currently present in the US or Eurozone, making the pound less desirable in the current circumstances.

The GBP/USD currency pair has dropped to a level of 1.2705 after being unable to maintain its upward momentum above the 100-hour moving average (represented by the red line) during earlier trading. Those selling the currency have regained some short-term power, but the direction of the market is now more balanced, with the price range confined to the upper level and the 200-hour moving average (represented by the blue line) at 1.2435.

Buyers, who were hoping to push towards a potential 1.3000 level, will face significant disappointment if the later is breached. Besides, considering the current situation in broader markets, the decrease in risk appetite can cause additional difficulties for the pound. Furthermore, there is a possibility of a risk shift towards the end of the month and quarter, making the upcoming days a bit challenging.

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