- UK consumer inflation increased by a smaller-than-expected 2.5% annually.
- Market participants increased the likelihood of a Feb BoE rate cut from 60% to 80%.
- Economists expect US consumer inflation to increase by 2.6% annually.
The GBP/USD forecast shows a bright day for the pound despite downbeat UK inflation figures. A decline in UK yields has relieved the currency after its recent plunge. On the other hand, the dollar halted its rally after soft wholesale inflation data. Moreover, traders eagerly await the CPI report for more clues on future Fed moves.
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Data on Wednesday revealed that UK consumer inflation increased by 2.5% annually. This was a smaller number than the forecast of 2.6%. As a result, market participants increased the likelihood of a Feb BoE rate cut from 60% to 80%.
The pound dropped in response, but only for a while. The increase in rate-cut bets also led to a drop in UK yields, which have rallied in recent weeks. The rally had caused uncertainty about UK finances and the economy, hurting the pound. Therefore, Wednesday’s pullback came as a welcome surprise, boosting sterling.
The pound also got support from a weak dollar. The greenback eased on Tuesday after cooler-than-expected wholesale inflation data. However, all focus is on the upcoming US consumer inflation report. Economists expect inflation to increase by 2.6% annually, holding from the previous month. A surprising number will cause volatility by shifting the outlook for Fed rate cuts.
GBP/USD key events today
- US core CPI m/m
- US CPI m/m
- US CPI y/y
GBP/USD technical forecast: Pullback pauses as 30-SMA poses a challenge
On the technical side, the GBP/USD price has rebounded to retest the 30-SMA resistance after making a new low at the 1.2102 support level. At the same time, the price has revisited the 1.2250 resistance level. However, the downtrend remains intact as the price trades below the 30-SMA with the RSI in bearish territory.
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The rebound has been a corrective move, with both bears and bulls showing some strength. However, the price must make an impulsive leg for the price to start trending. Therefore, if bears are ready to resume the downtrend, the price will make a new swing low below the 1.2102 support level.
On the other hand, an impulsive leg to break above the 30-SMA would signal a shift in sentiment that would likely lead to a bullish reversal.
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