GBP/USD Price Forecast: GBP Holds $1.34 as UK Inflation Hits 3.4% and Traders Wait for a Break
The British pound held its own through the European session, trading around 1.3420-1.3450 against USD, thanks largely...
Quick overview
- The British pound is trading around 1.3420-1.3450 against the USD, supported by a stronger-than-expected UK inflation reading of 3.4%.
- Despite the inflation surprise, economists predict that the Bank of England will cut rates in the first half of the year, limiting GBP/USD gains.
- Market players are cautious ahead of upcoming UK data, including retail sales and S&P Global PMIs, which could impact consumer spending.
- The GBP/USD chart shows a lack of momentum, with price action stuck below $1.3430 and no clear trend emerging.
The British pound held its own through the European session, trading around 1.3420-1.3450 against USD, thanks largely to a stronger-than-expected UK inflation reading . It turned out December’s headline CPI came in at 3.4% year-over-year – a full 0.1% higher than the expected 3.3%. And that wasnt all – it was also a 0.2% jump on November’s reading of 3.2%. It’s getting to the point where a lot of people are starting to think that UK inflation might be getting a bit – shall we say ‘sticky’.
That said, this inflation surprise didn’t really change anyone’s mind about what the Bank of England will do with interest rates. Most economists are still sticking to their forecast that inflation will start to ease in the coming months as last year’s energy price hikes fall out of the annual comparison. (Reuters is actually one of them, as are other forecasters – they still think the BoE will cut rates once in the first half of the year, which puts a bit of a dampener on the pound). Any GBP/USD gains have been fairly muted as a result.
UK Data Coming Up Will Cap Any Gains
In the meantime, market players are a bit hesitant to go all in on the pound ahead of some fresh UK data.
They’re keeping a close eye on:
- December retail sales – expected to fall 0.1% month-on-month, marking a third straight decline in sales
- The S&P Global PMIs for January, which should give us a pretty good idea of how growth and services are doing
Consumer spending just isn’t doing very well, and it’s all because higher borrowing costs are taking a bit of a toll on household spending, so any bad news on retail sales could quickly knock the wind out of the pound’s sails.
The dollar has itself been feeling a Bit Soft
Meanwhile, on the US side, the dollar has been losing some steam, giving GBP/USD some room to breathe. That earlier support the greenback was getting from easing trade and geo tensions has pretty much faded away now, and attention has shifted to the US PCE inflation reading. Markets think the Fed will keep rates on hold at 3.50-3.75%, according to CME FedWatch, leaving little room for the dollar to make aggressive moves. Yet.
The GBP/USD Chart – Not Exactly a Thrilling Story
On the technical picture, GBP/USD looks pretty stuck, to be honest. Price is hovering just below $1.3430 and running up against a trendline from the December highs, making a move look a bit tricky. On the 2-hour chart, we’re seeing all these small candle bodies and repeated upper wicks near $1.3450… that doesn’t exactly scream “trend” to me either.
Levels to watch:
- Support at $1.3380 and then $1.3340
- Resistance at $1.3485 followed by $1.3525
- The Relative Strength Index (RSI) remains rangebound in the 48-50 zone, reinforcing the pair’s lack of directional momentum or overbought/oversold signals.
- 50-ema and 200-ema – converging near $1.3420-$1.3440 – it’s clear that no one knows what’s going on here
We’re not seeing any clear triangle forming, but the price action is very clear: things are definitely stuck at the moment. Which, as we all know, can often be the setup for something big.
Trade idea: Look to buy on a sustained break above $1.3460, then set your sights on $1.3525, with a stop-loss below $1.3380.
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