Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.2772.
- Add a stop-loss at 1.2450.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.2565 and a take-profit at 1.2450.
- Add a stop-loss at 1.2770.
The GBP/USD pair wavered on Thursday morning as traders reacted to the Federal Reserve minutes and the recently released consumer inflation data from the UK. Sterling traded at 1.2575, a few points below this week’s high of 1.2630.
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UK inflation rebounded in January
A report by the Office of National Statistics (ONS) revealed that the headline Consumer Price Index (CPI) figure rose from 2.5% in December to 3.0% in January, while the core CPI moved from 3.2% to 3.7%.
These numbers signal that the UK inflation is stil high and moving further away from the Bank of England’s target of 2.0%. They also mean that the UK is in a stagflation period, where a country’s economic growth is slowing, while inflation is moving downwards.
The implication is that the Bank of England will maintain a balanced outlook in the next few meetings. A rate cut to supercharge the economy may trigger high inflation in the country.
The GBP/USD pair also reacted to the latest FOMC minutes. In that meeting, the bank’s officials decided to leave interest rates unchanged at 4.50%. The minutes revealed that most officials wanted the bank to maintain rates intact because of the ongoing inflation concerns.
Economists expect the Fed will hold rates steady in the next few meetings because of the ongoing inflation issues. Tariffs on imported steel and aluminum are expected to start in March. Trump has also announced that he will consider a large tariff on vehicles and pharmaceuticals in the coming months.
The next key minor catalysts for the GBP/USD pair will be the upcoming US initial and continuing jobless claim numbers. The US will also release the Philadelphia Fed manufacturing index data. While important, these numbers will have a mild impact on the GBP/USD pair.
GBP/USD technical analysis
The daily chart shows that the GBP/USD exchange rate has drifted upward in the past few months. It has jumped from 1.2100 in late January to the psychological point at 1.2600.
The pair has moved slightly above the 50-day Exponential Moving Average and the 23.6% Fibonacci Retracement point. Also, the MACD indicator has moved above the zero line, while the stochastic oscillator has risen to the overbought level.
Therefore, the pair will likely continue rising as bulls target the next key resistance level at 1.2772, the 50% Fibonacci Retracement point.
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