Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2500.
- Add a stop-loss at 1.2650.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2600 and a take-profit at 1.2600.
- Add a stop-loss at 1.2500.
The GBP/USD exchange rate held better than other pairs after the strong US inflation inflation and UK jobs report. The pair was trading at 1.2590, a few points below the year-to-date high of 1.2830 as a risk-on sentiment continued.
UK inflation data ahead
The GBP/USD pair retreated slightly after the latest US inflation data. According to the Bureau of Labor Statistics (BLS), the headline Consumer Price Index (CPI) rose by 3.1% in January, higher than the expected 2.9%. Core inflation rose by 3.9%, higher than the expected drop to 3.7%.
These numbers mean that inflation is still high in the country and that it will likely struggle to get to Fed’s target of 2.0%. It has remained between 3.1% and 3.4% in the past few months as the Fed has maintained rates at a 22-year high.
Therefore, the Federal Reserve will not be inclined to cut interest rates soon, especially if this trend continues. The Fed Rate Monitor Tool now has a 19% probability of a March rate cut. Most analysts expect the bank to start cutting in the second or third quarter.
The GBP/USD pair retreated also after the strong UK jobs numbers. The economy added 72k jobs in the three months to December. Further, the unemployment rate plunged to 3.8% while the average earnings index rose by 5.8%, better than the median estimate of 5.6%.
The next important report will come out on Wednesday morning when the UK releases the latest inflation figures. Like in the US, economists expect the report to show that inflation remained high in January. Precisely, they expect the number to reveal that the headline CPI rose from 4.0% in December to 4.1% in January. Also, they expect that the core CPI rose to 5.2%.
GBP/USD technical analysis
The daily chart has remained in a tight range in the past few days. It has remained at 1.2585, much lower than the YTD high of 1.2830. The pair has moved below the 50-day and 25-day moving averages. It is also nearing the important support level at 1.2520, its lowest swing on February 5th.
Meanwhile, the MACD has continued falling and the two lines have moved below the neutral point. Also, the Average True Range (ATR) has tilted downwards. Therefore, the pair will likely continue falling as sellers target the support at 1.2500.
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