Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2310.
- Add a stop-loss at 1.2520.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2470 and a take-profit at 1.2550.
- Add a stop-loss at 1.2350.
The GBP/USD exchange rate stabilized as the recent sell-off took a breather after the latest UK inflation data and a statement by Andrew Bailey. After plunging to a low of 1.2406 on Tuesday, the pair rose slightly to 1.2450.
Fed speakers ahead
The GBP/USD pair was stuck in a tight range on Wednesday after the UK published the March consumer inflation report. According to the Office of National Statistics (ONS), the headline Consumer Price Index (CPI) rose to 3.2% in March, higher than the median estimate of 3.1%.
Core inflation retreated from February’s 4.5% to 4.2% in March, also higher than the expected 4.1%. These figures mean that inflation is not dropping faster than anticipated.
Still, the Bank of England believes that the country is on track to beat inflation. In a statement, Andrew Bailey said the numbers were on track with BoE’s forecast. He expects that the headline CPI will drop below 2% in the next few months as inflation slows.
There are three main challenges for the UK’s inflation. The ongoing crisis in the Middle East could stir higher energy prices. Also, the country is seeing higher services and rental prices because of low inventories.
Most importantly, wage growth is accelerating, which could push prices higher. A report published on Tuesday showed that wages rose by 5.6% in February.
Economists expect that the Bank of England will cut interest rates earlier than the Fed since US inflation is moving in the wrong direction.
The next important GBP/USD news will come from the US, where several Fed officials like Raphael Bostic, Michele Bowman, and John Williams. In his statement last week, Bostic noted that the bank would start cutting interest rates in the fourth quarter.
The other important events will be the latest US initial and continuing jobless claims data. The US will also publish the Philadelphia Fed manufacturing index for April.
GBP/USD technical analysis
The GBP/USD pair has been in a steep sell-off in the past few weeks. It has plunged below the crucial support level at 1.2520, its lowest swing in February. The pair has remained below the 50 and 25-period moving averages and the Woodie pivot point.
Meanwhile, oscillators like the MACD and the Relative Strength Index (RSI) have all pointed upwards, which is a positive sign for sterling. This action is because the recent sell-off has eased.
The pair has formed a bearish flag pattern. Therefore, the outlook for the pair is still bearish, with the next support to watch being at the first support of the Woodie pivot point at 1.2307.
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