The GBPUSD pair is declining as traders prepare for the Jackson Hole event. The US dollar started the week strong due to speculation that Powell may take a hawkish approach. Meanwhile, a drop in stocks indicates profit-taking and hedging. Recent US data shows improved jobless claims and rising inflation, suggesting there won’t be an immediate rate cut in September. Expectations now predict around 52 basis points of easing by year-end. In the UK, the Bank of England’s last meeting was also hawkish, with rising UK CPI and Flash PMIs indicating strength and inflation pressures.

Inflation Concerns and Technical Analysis

Inflation is still a major concern for central banks, even with signs of weakness in the labor market. Core inflation remains above 3%, making it tough to reach the 2% target. On the technical side, GBPUSD is trading lower, with sellers focusing on the 1.3368 level, while buyers may aim to push back to 1.3590. The 4-hour chart shows a slight downward trend that supports ongoing bearish momentum. The 1-hour chart doesn’t provide much new information, but traders are looking for rejections or breaks to determine the next direction. Important upcoming data includes US Jobless Claims, Flash PMIs, and Powell’s speech at the Jackson Hole Symposium. With a cautious mood leading into the Jackson Hole event, the US dollar is gaining strength. Recent data hasn’t prompted Federal Reserve Chair Powell to indicate a rate cut. We expect this careful sentiment to persist until his speech offers more clarity. The latest economic data supports a patient Federal Reserve, leading to increased interest in the dollar. For example, last week’s US jobless claims were solid at 215,000, and July’s CPI showed inflation rise to 3.6%. Consequently, market expectations for year-end rate cuts have decreased.

Divergent Inflation Stories

In the UK, inflation remains persistently high, with July’s CPI surprising at 4.2%, significantly above the Bank of England’s target. This ongoing inflation, particularly with core figures above 3% since 2021, prevents the BoE from adopting a dovish stance. This difference in inflation narratives is crucial for the currency pair. For derivative traders, the high uncertainty leading up to tomorrow’s speech suggests elevated implied volatility. This makes buying options a smart strategy to manage risk while preparing for a significant move. We might consider buying puts with strikes near the 1.3368 support level, speculating that a hawkish Powell could push the pair lower. If Powell’s tone is more aggressive than expected and confirms market concerns, the path toward the 1.3368 level could become clearer in the coming weeks. On the other hand, if hints of dovish surprises arise, it could break the current downward trend on the four-hour chart. In that case, call options targeting a rebound towards 1.3590 would become appealing. Remember that Powell’s hawkish speech at Jackson Hole last year caused significant market changes, so the risk of sharp movements is real. Therefore, it’s wise to use strategies that limit potential losses. The key technical levels of 1.3368 and 1.3590 provide excellent guidance for setting option strike prices around this critical event. Create your live VT Markets account and start trading now.

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