UK: Will a shocking inflation report send GBP/USD higher?

All eyes will be on Pound Sterling and GBP/USD as the latest UK inflation figures were released at 7 am UK time today

Last month, as per the chart below, the UK headline inflation rose to an annual rate of 10.4% vs 9.7% as expected by economists. It also ended the downtrend of a lower inflation rate.  

The stubbornly high inflation rate is putting pressure on the Bank of England to remain hawkish, and consequently, the GBP/USD rate has been in an upward trend over the last few months. 




At the March inflation report release, GBP/USD rose by 69 pips four hours after the event, beating the inflation growth expectations. The range was typical for GBP/USD as in the last 11 months. The GBP/USD pair is traded in a range of 77.71 pips as per the economic calendar in ThinkTrader. We also know that the price change was bullish 55% of the time, 36% bearish and 9% neutral. 


 

How to trade GBP/USD on the UK inflation report? 

The charts above suggest buying GBP/USD on a short-term scalp between 20 to 30 pips on inflation being stronger than expected. However, a trader would need to pay attention to the daily range, e.g., if the price is already up by 50 pips from the daily low, then there would only be a scope for another 27 pips to the upside, as the daily range has typically been 77.71 pips. 

In this scenario, the risk-to-reward ratio would be slightly negative, as the upside would only be 27 pips, while the downside would be 50 pips, and it is recommended to have at least a balanced risk-to-reward ratio. On inflation failing to beat expectations, GBP/USD should be able to trade lower.

The more actual inflation growth deviates from the expected outcome, the stronger the reaction should be in GBP/USD. 

What is Signal Centre suggesting? 

ThinkMarkets partnered with Signal Centre earlier this month to provide insightful and high-performance research to their clients, to help them reach their objectives faster and safer. 

Signal Centre suggest that GBPUSD is oversold in the short term, and they prefer to place a buy limit at 1.2295 with a stop loss at 1.2245 and profit at 1.2440. Their analysis is updated daily, so sign into your free ThinkMarkets account for the latest trade ideas. 

GBP/USD four-hour chart


Source: ThinkPortal via Signal Centre.