GBP/USD plummets down to 1.3420 post-US CPI figures, amid Brexit tensions increase

• The British pound collapses, down 160 pips during the day on high US inflation.
• US CPI increased the most in 30 years, topping 6.2%.
• Brexit: UK and EU look far from reaching a post-Brexit deal on Northern Ireland.

The British pound reverses this week’s gains and some more, plummeting 160 pips during the day, down almost 1%, trading at 1.3426 at the time of writing. Since the beginning of the week, the GBP/USD pair trimmed last Friday’s losses, bouncing from 1.3400 to this week’s high (November 9) at 1.3606, amid the lack of a catalyst, mainly driven by US dollar weakness. Also, lower US bond yields dragged the greenback lower, ahead of the critical US CPI release.

US CPI increased the most in 30 years, topping 6.2%

On Wednesday, the Labour Department reported that the US Consumer Price Index for October rose by 6.2%, on a yearly basis, higher than the 5.3% expected by analysts. Further, the Core CPI that excludes energy and food volatile items increased by 4.6% for the same period, more than the 4.3% foreseen by market participants. 

According to the report, prices in energy, shelter, food, and vehicles triggered the spike in the CPI. Also, inflation is broadening beyond areas associated with a reopening.

That said, USD bulls gained traction, spurring a 160 pip drop in the GBP/USD pair, overcoming intraday support levels like the November 9 low at 1.3523, followed by the November 8 low at 1.3490, and then the  S3 pivot level at 1.3433.

Additionally, in the last hour or so, Brexit woes hit the wires, as the UK and the EU look far from reaching a post-Brexit agreement over Northern Ireland.

“EU governments agreed on the need for “robust” action against Britain if London follows through on its threat to invoke emergency unilateral provisions,” per Reuters.

According to sources cited by Reuters, “Downside risk may emerge for the pound in the coming days as it looks increasingly likely that the UK will unilaterally suspend parts of the Northern Ireland Protocol.”

That said, GBP/USD traders should note that if the UK triggers Article 16, the British pound could potentially sell-off because the Euro Zone would not stand still instead would retaliate against the UK.