GBP/USD Poised as CPI Data Looms; Technical Levels Indicate Key Resistance Ahead
GBP/USD has remained steady, trading close to its recent peak levels, as market participants focus on the critical UK Consumer Price Index (CPI) data due on Wednesday. This data is crucial as it could influence the Bank of England’s (BoE) next steps in monetary policy, particularly if the inflation figures come in below anticipated levels. A lower-than-expected CPI might hasten expectations for interest rate cuts, potentially driving the GBP/USD down towards its April low of 1.2299. The pair’s recent upward movement has been fueled by comments from Federal Reserve Chair Jerome Powell, who indicated a halt to rate hikes and suggested that cuts are on the horizon. This stance is bolstered by recent U.S. economic data showing signs of a slowdown, which may lead to more immediate and significant rate reductions by the Fed. However, the pound’s continued rise is somewhat surprising given the BoE’s recent dovish pivot, where two key members voted for a rate reduction, and Governor Bailey acknowledged the possibility of a cut in June.
Technically, GBP/USD has demonstrated strength, consistently setting higher highs and higher lows in the last five trading sessions, which is a positive sign according to technical analysis standards. Key resistance levels are in focus, particularly Tuesday’s high at 1.2727, the 38.2% Fibonacci retracement of the move from 1.3144 to 1.2070 at 1.2734, and the high from March 18 at 1.2803. The forthcoming CPI results could either support the currency pair’s bullish trend or trigger a downward adjustment if the data leans towards increased probability of rate cuts. From a broader economic standpoint, the divergent monetary policies of the U.S. and UK are pivotal. While the Fed is leaning towards easing, the BoE remains cautious, influenced by ongoing inflation trends. If the impending CPI figures reveal a continued decline in inflation, reinforcing the easing trajectory, this could lead to a depreciation of the pound as market expectations for UK monetary policy are recalibrated.
