GBP/USD is under pressure, trading around 1.2220 after two days of gains, following softer-than-expected inflation data from the UK. The Consumer Price Index (CPI) for December showed a smaller-than-anticipated increase, which could provide the Bank of England with room to cut interest rates in February. As such, the Pound faces headwinds, especially against a weakening USD, despite lower-than-expected US Producer Price Index (PPI) figures. Technically, GBP/USD remains above the 23.6% Fibonacci retracement level but needs a sustained break above the 1.2240 resistance to regain bullish momentum. However, a drop below 1.2200 may trigger further downside towards 1.2150 or even 1.2100, especially if US inflation data later in the week influences market expectations for Federal Reserve policy.
KEY LOOKOUTS
• Readings could pave the way for potential interest rate cuts by the Bank of England, weighing on the Pound’s strength against the USD.
• To maintain the momentum, GBP/USD needs to break above 1.2240 resistance and then target 1.2280 and 1.2300.
• US Consumer Price Index is going to play a significant role in determining the Federal Reserve rate outlook, thus affecting USD dynamics and GBP/USD price action.
• Optimism over US trade policies and ease concerns over the Fed rate cuts could cap the further USD weakness and give some support to the GBP/USD pair.
GBP/USD major key watch items would be UK inflation data that will impact the decision of interest rate cuts from the Bank of England, putting even more pressure on the Pound. Technically, the pair faces resistance around 1.2240, and a break above this level could take it towards 1.2300. Additionally, the US Consumer Price Index report that is due out soon will be crucial in forming expectations for Federal Reserve policy, which may influence the strength of the USD. Finally, the overall market sentiment about US trade policies and economic conditions will also determine the short-term direction for GBP/USD.
The immediate direction of the GBP/USD would depend on the UK inflation report, possible rate cuts by the BoE, technical resistance around 1.2240, and US CPI.
• Softer-than-expected CPI data in December might provide the BoE with space to cut interest rates, hurting the Pound.
• The pair is resisting at around 1.2240; a sustained break above this point could take the pair towards 1.2300 and other higher Fibonacci levels.
• US PPI data was weak, which contributed to a softer USD in the short term.
• The US Consumer Price Index (CPI) release will be important in shaping expectations for the Federal Reserve’s interest rate policy.
• Optimism over US economic conditions and easing trade concerns could provide support to the USD, limiting further Pound gains.
• The 23.6% Fibonacci retracement level at 1.2200 is critical, and there is a potential for further upward movement if GBP/USD can break above 1.2240.
• The daily RSI for GBP/USD has started to show signs of being oversold, which might suggest a bounce near key support levels like 1.2150-1.2100.
GBP/USD is under pressure as softer-than-expected UK inflation data increase the chances of possible interest rate cuts by the Bank of England. Consumer Price Index for December came in at 2.5% below expectations, and that has led to concerns whether the UK economy may indeed be easing inflationary pressures, especially concerning stagflation risks. The pair is technically holding above the 23.6% Fibonacci retracement level at 1.2200; however, much upside remains dependent upon a clear break above the resistance zone at 1.2240.
The US Consumer Price Index for April will also determine the way ahead for Federal Reserve monetary policy and USD movements in the coming weeks. A less-than-expected print on CPI would further keep USD pressure low, but a better print would likely increase the chances of a strengthening dollar. Improved US economic conditions as trade tension issues ease should add to support the USD as well. Traders will be focusing closely on both US and UK data flows in the next days, which will probably decide the major market moves for the GBP/USD in the near future.
TECHNICAL ANALYSIS
From a technical view point, GBP/USD is holding above the short-term support at the 23.6% Fibonacci retracement level at 1.2200. A break above the 100-hour Exponential Moving Average (EMA) at 1.2240 can sustain higher, where 1.2280 represents a possible area on the 38.2% Fibonacci level. Further strength might take the price to the 1.2300 region and the 1.2315 resistance area. If the price drops below 1.2200, some of the significant support levels include 1.2150-1.2140 and then 1.2100. A clear violation below 1.2100 would most probably establish a continuation of the broader trend, leaving it open to a further drop.
GBP/USD Daily Price Chart
Sources: TradingView, Prepared By ELLYANA.
FORECAST
If GBP/USD breaks above the immediate resistance at 1.2240 (100-hour EMA), then it could make its way toward the next key resistance at 1.2280, which also coincides with the 38.2% Fibonacci retracement level. Further up, the pair may push toward 1.2300, followed by the 1.2315 resistance zone. A strong break above 1.2315 may signal a potential rally toward the 50% Fibonacci level at 1.2335, further extending gains.
On the negative side, if GBP/USD cannot sustain a rally above 1.2200, then a move below that support may find the next strong support in the region of 1.2150-1.2140. A breach of that zone may see 1.2100 in the near future. Once 1.2100 falls, then recent lows might be seen, thus continuing the major downtrend and bringing possible targets in the vicinity of 1.2050 or even 1.2000.
