Image source: jax10289 © 123RF.com
According to the Office for National Statistics in the UK, the inflation rate in the country surged to 1.8 per cent in January, up from the 1.3 per cent that was recorded in December of 2019.
These results exceeded the consensus forecasts, which projected the boost in the Consumer Price Index on a year-over-year basis to reach only 1.6 per cent, which demonstrates more rampantly growing prices in the UK than previously anticipated.
UK Inflation Rate. Image source: TradingEconomics.com
These results are inlined with the BOE's anticipation for long-term inflation, reaching its target at 2 per cent.
However, the soaring prices are mostly owing to rising fears over the economic stability in the UK after Brexit, as opposed to indicating healthy price stability. An example of this is the observed spike in transportation prices, which jumped with over 1 per cent last month.
The rising prices in Great Britain are also partially the result of increased government spending in the fourth fiscal quarter of 2019.
UK Government Spending. Image source: TradingEconomics.com
The levels of aggregate government spending have now reached all-time highs, which is exhibitive of the British Government’s attempts to negate the negative impact of the uncertainty that was caused after the no-deal Brexit divorce with the EU.
The hit on British growth is for the time being partially offset by the expansionary fiscal policy that is being supported by 10 Downing Street; however, the recent increase in inflation is not necessarily an indication of price stability.
Investors and traders are aware of that, which is why the ongoing strengthening of the pound is at the current moment not entirely certain. Nevertheless, the GBPUSD seems to have found strong support at the 1.29830 price level.
The aforementioned level coincides with the middle line of the regression channel, which confirms the prominence of the support level.
The price action is currently in the process of developing a 1-5 impulse wave pattern, as per Elliott Wave Theory, which indicates the likely continuation of the current bullish swing in the short-term.
GBPUSD 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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