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GBPUSD falls below 1.30 after UK inflation jumps to 7.5%. USDCAD falls ahead of the BoC rate decision.

GBP/USD falls below 1.30 despite inflation jumping to 7%

GBP/USD fell to its lowest level this year after UK inflation rose by more than expected. UK inflation jumped to 7% YoY in March, up from 6.2% and ahead of forecasts of 6.7%.

Unsurprisingly the main source of higher inflation is rising fuel prices as oil prices jumped amid the fallout from the Russian war.

The BoE expects inflation to rise to 8% in April, however, given today’s rise, this could well be more like 8.5%.

Whilst high inflation will pile pressure on the BoE to hike rates, stalling growth is likely to mean that the BoE will be cautious about hiking rates aggressively, for fear of tipping the UK into recession.

This is in stark contrast to the Fed which, after 8.5% YoY CPI is expected to raise rates by 50 bp in May and then tighten monetary policy aggressively across the year.

Where next for GBP/USD?

GBP/USD has been trending lower since March 23, forming a series of lower highs and lower lows. The pair has broken below 1.30 the key psychological support and 1.2980 the 2022 low, opening the door to 1.29 round number.

On the flip side, the first point of resistance above 1.30 psychological level is 1.3050 and then 1.3080 the 50 sma.

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USD/CAD ahead of the BoC rate decision

USDCAD is falling ahead of the BoC interest rate decision later today. With inflation at a 30 year high of 5.7% and unemployment at a record low, the central bank is expected to raise interest rates by 50 bases, and potentially even 75 basis points. A 25-basis point hike is likely to disappoint. The bank is also expected to announce quantitative tightening.

Oil prices moving back over $100 are underpinning the loonie, as concerns over the prospects of a diplomatic solution to the Ukraine war fade.

Meanwhile, the prospect of an aggressive Fed is keeping the USD supported. The market now prices in an 87% probability of a 50 bp rate hike in the May meeting. US PPI data is due later.

Where next for USD/CAD?

USD/CAD extended its recovery from 1.24. The rise above the 200 sma, combined with the bullish MACD and the dip-buying on Tuesday are keeping buyers optimistic of further gains.

Buyers will look for a rise above the 50 sma at 1.2650, to accelerate towards 1.27 round number and 1.2730 a level which has offered both support and resistance on several occasions across the past few months.

Sellers will look for a break below the 200 sma and rising trend line support at 1.2625 to bring the overnight low of 1.2580 into play and 1.25 psychological level.

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