GBP/USD Can Bounce Up 200-300 Pips In The Next Few Days!

Today GBP/USD fell around 100 pips when the CPI y/y data release showed UK inflation slower than expected. Market was expecting 1.8% inflation year to year whereas the actual data when released was 1.6% year to year.  Lower inflation figures prove that the Bank of England Governor Mark Carney was right in not raising the interest rate soon.

U.K. inflation fell more than expected in July driven by a fall in clothes and alcohol prices, the Office for National Statistics (ONS) said on Tuesday.

Consumer prices rose 1.6 percent in July compared to the same month last year, coming in below the 1.8 percent forecast in a Reuters poll of economists. It remains well below the Bank of England’s (BoE) 2 percent target. The figure was also down from June’s 1.9 percent reading.

“With inflation under control for now, the BOE can keep any hikes gradual and allow the economy to keep growing strongly,” said Rob Wood, an economist at Berenberg Bank in London. “Weak wage growth means the BOE now believes that unemployment can fall further without pushing up inflation.”

Now this market analyst sees UK interest rates rising before the end of this year. With the lower than expected inflation, it is hard to believe that BOE will raise interest rates before the year end.

Now this market analyst gets the clues about the UK interest rate hike from language of the quarterly inflation report.

This analyst says that BOE is under pressure to hold the rates.

GBP/USD charts are showing bullish divergence developing. If this is confirmed it means GBP/USD can bounce up 200-300 pips before it again starts falling. Somtimes market overeacts. When it overreacts, it makes a correction which precisely what can happen now. Tomorrow is also an important day as FOMC Meeting Minutes are scheduled.