GBP/USD experienced a volatile session on Wednesday, with geopolitical tensions overshadowing the upside surprise in UK CPI. Reports of Ukraine using UK missiles against Russian targets pressured sterling, sending the pair to session lows near 1.26. However, the support at this level remained intact, reflecting limited appetite for further downside. Sterling’s resilience against the euro highlights that the GBP/USD weakness is more reflective of broad-based dollar strength rather than specific sterling vulnerabilities. The UK CPI data, while marginally above expectations, aligned with the Bank of England’s projections, leaving the central bank’s policy outlook unchanged and reinforcing the narrative of gradual rate cuts in 2024.
Technically, GBP/USD finds strong support at 1.26, a psychological and structural level. A break below this could expose the pair to deeper declines toward the 1.25 handle. On the upside, immediate resistance lies at 1.27, with further gains capped near the 200-hour moving average at 1.2740. The pair’s failure to break above these levels post-CPI suggests bearish momentum remains dominant, driven by safe-haven flows into the dollar amid rising geopolitical risks.
Looking ahead, GBP/USD is likely to remain headline-driven, with geopolitics and broad dollar trends dictating direction. Any escalation in Russia-Ukraine tensions could see a renewed test of the 1.26 support, while a de-escalation may allow sterling to stabilize and target 1.27 resistance. Market participants will also closely monitor U.S. data releases and broader risk sentiment for further cues.