British Inflation Slows Less Than Expected to 3.2% in March

An Unforgettable Event Elevating Trading Education 

Consumer price inflation in the United Kingdom slowed less than expected to a two-and-a-half-year low of 3.2% on an annual basis in March, down from the 3.4% increase recorded in February, the Office for National Statistics reported on Wednesday.

The Bank of England, which has an inflation target of 2%, and economists surveyed by Reuters had anticipated an annual rate of 3.1%.

The deceleration in UK inflation contrasts with the accelerating price growth in the United States, which rose for the second consecutive month to 3.5%, according to data released last week.

The British pound advanced against the dollar and the euro immediately following the release of the figures.

Core inflation, which excludes energy, food, and tobacco prices, also slowed to 4.2% from February’s 4.5%. The Reuters survey had pointed to a reading of 4.1%.

Service sector inflation, closely monitored by the Bank of England, edged down slightly to 6.0% from 6.1%, according to the ONS.

Food and non-alcoholic beverage prices rose by 4% in the 12 months to March, their weakest increase since November 2021.

Currently, the GBP/USD pair is trading slightly higher at 1.2448, accumulating daily gains. Meanwhile, the Dollar’s rebound was tempered by the decline in U.S. Treasury yields, but Dollar prospects remain upbeat as the U.S. economy stays strong and markets bet on a more aggressive Federal Reserve (Fed).

Earlier in the session, the UK Consumer Price Index (CPI) for March showed a slight increase, indicating ongoing inflationary pressures. In response, markets adjusted their expectations regarding the Bank of England’s upcoming decisions, with the initial rate cut now anticipated for September, marking a delay from the previously expected August timeframe. Additionally, the probability of a second rate reduction in December has decreased to 60%, down from earlier forecasts earlier in the week. This recalibration of expectations has benefited the Pound on Wednesday.

Technical Analysis of GBP/USD

In the daily chart, the Relative Strength Index (RSI) is approaching the oversold zone. On Wednesday, there was a positive movement from 31 to 34, suggesting that the market is currently dominated by sellers, and the pair could be on the verge of experiencing a price correction or reversal as sellers take a breather.

Taking a broader view, it’s observed that the GBP/USD pair has been trading below the 20-day, 100-day, and 200-day Simple Moving Averages (SMAs), indicating that the overall trend remains bearish. That being said, traders should pay close attention to an imminent bearish crossover around 1.2570 between the 20-day and 200-day SMAs, which could add further downward pressure to GBP/USD.