- According to recent trading activity, the GBP/USD exchange rate has stabilized above the 1.26 level, with gains reaching the 1.2637 resistance level, the highest point for the currency pair in two months.
- The pound has remained stable upwards after Britain announced an unexpected rise in inflation from 2.5% in December to 3.0% year-on-year in January, exceeding previous consensus estimates for a rise to 2.8%.
- Consequently, this means that buyers of the US dollar are seeing the best available exchange rate since December 19th.
Factors Contributing to the Pound Sterling's Gains
According to Forex market trading and through trusted trading company platforms, the pound's advance comes amid rising inflation in the British services sector to 5.0% in January from 4.4%, raising concerns that high inflation is widespread and will require a more restrictive stance from the Bank of England. The bank is tasked with targeting inflation at 2.0%, and all signs now point to increased price pressures. Furthermore, the typical response would be to tighten policy by keeping prices unchanged or even raising them.
However, the bank expects inflation to rise to 3.7% this year, but believes the rise will be temporary and has indicated that it will continue to cut interest rates.
Nevertheless, the February inflation release appears hotter than the bank expected, suggesting it will have no choice but to halt the easing cycle later in the year. Inflationary pressures are expected to rise in the spring as the government imposes significant new taxes on businesses, which are likely to lead to higher prices. Overall, money markets will price in fewer interest rate cuts, which should support UK bond yields and automatically boost the value of the pound sterling.
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GBP/USD futures in forex
The GBP/USD exchange rate rose to a high of 1.2639 in mid-week trading, which represents the strongest level for dollar buyers since December 19, 2024. Although hotter-than-expected inflation data in Britain offers some upside, the bulk of the advance is due to dollar weakness. Commenting on currency market trading, experts at Capital Economics believe: "The US dollar remains in retreat as the 'Trump trade' with the dollar recedes." They added, "Between news about President Trump's tariff plans, his moves towards apparent rapprochement with Russia, and some weaker US economic data towards the end of the week, the dollar has fallen to its lowest level in two months."
However, Capital Economics sees limits to US dollar weakness, which could contain GBP/USD’s rally.
He maintains his expectations that the dollar will end the year higher, “because we still believe that US tariffs will end up rising significantly, while the US economy and stock market will resume outperformance.”
Trading Tips:
The British pound is a risk currency that benefits from positive investor sentiment and strong financial markets, so monitor the factors influencing this to anticipate the most appropriate trading opportunities
Technical Analysis for the GBP/USD pair today:
According to recent trading, the GBP/USD pair has now retreated to trade slightly below the 100-hour moving average line. However, the pair made a late recovery to avoid falling into oversold levels for the 14-hour RSI. In the near term, bulls will look to move the currency pair higher at around 1.2635 or higher at the 1.2690 resistance. In contrast, bears will seek to capitalize on renewed selling at around 1.2540 or lower at the 1.2475 support.
In the long term, based on the performance on the daily chart, the GBP/USD pair is trading inside an ascending channel formation. Also, the 14-day RSI supports a long-term bullish bias as it approaches overbought levels. Therefore, bulls will seek to ride the current wave of gains towards the resistance of 1.2825 or higher to the psychological resistance of 1.3000. On the other hand, and on the same time frame, bears will seek to benefit from the renewed selling operations to move the currency pair towards the support levels of 1.2360 and then to the support of 1.2100 respectively.
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