GBP/USD Pair Eyes Further Gains Amid Key Economic Indicators and Market Dynamics

The GBP/USD pair continues to garner buying interest for the second consecutive day, building on its significant recovery from the sub-1.2600 levels, a low not seen in over a month. Currently trading just shy of the critical 1.2700 mark, the pair finds substantial support amid shifting market expectations regarding the Bank of England’s (BoE) interest rate trajectory.

Data released by the UK Office for National Statistics (ONS) has been a pivotal factor in this upward trend. Notably, the Consumer Price Index (CPI) experienced its first increase in ten months, rising to 4.0% in December, up from a more than two-year low of 3.9% in the preceding month.

Moreover, the core CPI measure, which excludes the volatile elements of food, energy, alcohol, and tobacco, remained steady at 5.1% against market expectations of a decrease to 4.9%.

This development has led to a recalibration in market forecasts, with the likelihood of the BoE commencing rate cuts by mid-May now estimated at around 60%, a significant decrease from over 80% the previous day. This revision is bolstering the British Pound’s (GBP) strength.

Concurrently, the US Dollar (USD) is experiencing a slight retreat as investors engage in profit-taking after its recent ascent to the highest levels since mid-December, providing further momentum to the GBP/USD pair.

However, with the Federal Reserve (Fed) adjusting its interest rate cut expectations following robust US Retail Sales figures, the consequent support for the US Treasury bond yields could moderate any substantial USD decline. This scenario suggests a cautious approach for traders considering bullish bets on the currency pair.

Amidst these financial adjustments, ongoing geopolitical tensions and China’s economic challenges continue to influence global investor sentiment. The general weakness in equity markets, reflective of these concerns, may enhance the USD’s appeal as a relative safe-haven, potentially counterbalancing gains made by the British Pound.

Therefore, investors may benefit from observing strong follow-through buying as confirmation of a near-term base formation in the GBP/USD pair before anticipating further upward movement, especially in the absence of significant economic announcements from the UK.

Looking ahead, the GBP/USD pair’s trajectory will likely be influenced by the upcoming US economic data, including Weekly Initial Jobless Claims, the Philly Fed Manufacturing Index, and housing-related statistics.

Additionally, a speech by Atlanta Fed President Raphael Bostic and movements in US bond yields are poised to impact the USD, providing fresh cues for the currency pair’s direction.

GBP/USD Technical Outlook

Yesterday, the GBP/USD pair closed above the 1.2650 level, indicating a pause in the recent bearish correction and setting the stage for a renewed attempt at reclaiming its primary bullish trend. Key targets for this upward movement begin at 1.2780, extending to 1.2825.

A breach of the 1.2695 level could facilitate the achievement of these targets, whereas a break below 1.2650 might halt the expected rise and reintroduce bearish pressures.

Today’s expected trading range lies between the support level of 1.2620 and the resistance at 1.2780, with the trend anticipated to be bullish.

GBP/USD Live Chart