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Pound holds below 1.3400 amid fiscal worries and softer UK inflation
GBP is on track for a 0.6% weekly decline, after UK consumer inflation eased to 2.6% year on year and producer prices slowed beyond expectations in June.
The British pound traded below 1.3400 against the US dollar on Thursday, consolidating losses as investors weigh renewed fiscal concerns tied to Prime Minister Andrew Burnham’s spending plans, FXStreet reports. The currency was also set for a 0.6% weekly decline, following a reversal from 1.3558 highs last week.
FXStreet links the pound’s weakness to soft inflation data released earlier in the week, including UK consumer inflation easing to 2.6% year on year, its lowest rate since March last year, and producer prices slowing more than expected in June. The report says those figures give the Bank of England more time to assess the impact of volatile energy prices and reduce hopes for near-term rate hikes.
In addition, strategists at Brown Brothers Harriman warned that the risk of higher spending and borrowing under Burnham could worsen UK fiscal credibility, weighing on GBP. FXStreet also cites a view from UOB Group that downward momentum is building, with a further move lower likely if GBP closes below 1.3340, targeting 1.3300.
UOB reiterated that its downside case would remain intact as long as key resistance holds, saying it now sees “strong resistance” at 1.3435, lower than its prior level at 1.3455, which would invalidate the bearish technical setup if breached.