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#1 13-01-2022 09:56:32

johnedward
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From: Paris - France
Registered: 21-12-2009
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GBP/USD: back and forth trading on pair is over due to US inflation

GBP/USD: back and forth trading on the pair is over due to US inflation data - here's what the report says


The December U.S. inflation report shows that the annual change in the prices of goods and services reached 7% year-on-year. As a result, the USD is sold off at all levels, as evidenced by the pair's breakout.

The most anticipated economic report of the trading week is behind us. December inflation data from the U.S. showed the third consecutive month with annual inflation above 6%. Prices for goods and services rose in December by 7% year-over-year, driven by used cars and food.

As a result, the U.S. dollar fell across the board, as evidenced by the GBP/USD breakout. The pair consolidated in a wedge formation that eventually broke higher. The pair has advanced nearly 500 pips from the December lows, making it one of the best performing currency pairs of the past trading month.

For bulls, the 1.35 level acts as a pivot. Although above it, the price action remains bullish. On the other hand, a daily close below 1.35 would bring dollar strength back into the discussion.

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Not only has the British pound gained against the U.S. dollar, but all of the dollar's peers. Inflation report puts Fed under pressure, but central bank vows not to act until March.

Highlights of December U.S. inflation data
December inflation data in the U.S. shows, once again, that inflation is soaring. Not only did the m/m CPI exceed expectations, but so did the core CPI. Core data excludes food and energy prices and is one of the Fed's favorite indicators for measuring inflation. It came out up 0.6% for the month, while the market was expecting a 0.5% increase.

Yesterday's release shows that this is the largest annual increase in inflation since 1982. The main difference between now and 1982 is that the federal funds rate is near zero. In addition, the Fed is still easing via quantitative easing, even though it has begun to reduce its asset purchases.

Food, new vehicles, used cars and trucks, and clothing led inflation higher in December. Shelter and medical care services also became more expensive. Thus, the market reaction to the sell-off in the U.S. dollar is understandable.

After all, if there are no signs of inflation spiking and the Fed remains on the sidelines, the dollar has a hard time rebounding. As such, GBP/USD and its peers will likely continue their run, as the breakout suggests.

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