GBP/USD hits 6-day low in Asia as UK economy feels the inflation pinch

The GBP/USD has dropped to a 6-day low of 1.2904 in Asia and is threatening to take out the psychological support level of 1.29 on concerns the traditionally resilient UK consumer is finally giving up due to rising price pressures.

Brits feel the inflation pinch

The UK Office for National Statistics (ONS) revised UK’s first quarter GDP lower to 0.2% quarter-on-quarter from the preliminary estimate of 0.3%. The previous quarter’s growth rate was 0.7%.

The ONS data showed the household spending grew by the smallest amount since late 2014 adjusting for inflation. A number of private and official forward looking consumer spending indicators has been showing a marked slowdown in the consumer spending.

And the culprit is higher inflation, which is forcing consumers to curtail their spending on the ‘big ticket’ items due to increased food costs. UK inflation currently stands at 2.7% y/y, which is well above the BOE’s 2% target.

The dollar side of the story may strengthen/weaken depending on the quality of the US GDP, core personal consumption expenditure and durable goods orders number.

GBP/USD Technical Levels

A strong support is seen at 1.2871 (100% Fib expansion of March low-March high-April low). Dips below the same were met with fresh bids earlier this month. Hence, only a daily close below 1.2871 would add credence to the bearish price RSI divergence on the daily chart and could yield a pullback to 1.2726 (50-DMA) and 1.27 (zero levels).

On the other hand, only two consecutive daily close above 1.30 would revive the bullish view and open up upside towards 1.31 (zero levels) and 1.3121 (Sep 22 high).