The GBPUSD pair declined today as the market reacted to the weak inflation numbers and job cuts decision by Rolls Royce. The market will now focus on a testimony by Andrew Bailey, the Bank of England (BoE) chair. There are also concerns about the stalled Brexit talks.
Weak UK inflation data
The GBPUSD fell after the Office of National Statistics (ONS) released the April. The numbers showed that the UK was slowly sliding into a deflation as the rate of inflation declined to the lowest level since 2016.
The headline CPI declined by -0.2% in April alone. The rate rose by just 0.8% year on year, which was the lowest level since 2016. This decline was mostly due to the clothing and accessories industry, which fell sharply. With most people spending time at home, very few of them were concerned about buying clothing and accessories. The core CPI rose by just 0.1% in April and by 1.4% year on year.
GBPUSD reacts to Rolls Royce news
The biggest news from the UK was from Rolls Royce, one of the biggest employers in the UK. The company said that it would cut more than 9,000 jobs this year. The company is facing serious problems as the coronavirus crisis has reduced the demand of its airplane engines. Most of these jobs will be lost in the United Kingdom, where the company employs more than 50,000 people. These job losses could lead to a sharp jump in the overall unemployment rate.
Andrew Bailey testimony waited
A testimony by a central bank governor is important for the local currency. The GBP/USD pair will react to a statement by Andrew Bailey, who will be testifying in parliament. The most important question will be whether the bank would consider negative rates as inflation slides.
In the past, the bank has sent mixed signals on this. While Bailey has ruled out these rates, his deputy governor has said that the bank should discuss the merits and demerits of the funds. The testimony will come a day after Jerome Powell of the Federal Reserve testified.
Meanwhile, GBPUSD traders are concerned about the unfinished Brexit business even as the country unveiled plans to lower overall tariffs.
The GBPUSD pair is trading at 1.2248, which is slightly above this week’s low of 1.2073. On the daily chart, the price is slightly above the 38.2% Fibonacci retracement level and lower than the 50-day and 100-day EMA. GBPUSD also appears to have formed a bullish engulfing pattern. A close in the green today will mean that bulls are in control because it will form a three white soldiers pattern.
On the flip side, a move below this week’s low of 1.2070 will invalidate this trend because it will indicate that there are more bears in the market.