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Mar 20
2024

GBP/USD holds above 1.2700 after soft UK inflation data

GBP/USD tested 1.2700 in the early European session on Wednesday but managed to hold above that level. The data from the UK showed that the annual CPI inflation declined to 3.4% in February from 4% in January, coming in below the market expectation of 3.6%.

Technical Overview

The Relative Strength Index (RSI) indicator on the 4-hour chart stays slightly below 30, suggesting that the pair is close to turning technically oversold. The last two times that the RSI dipped to the 30 area on the same chart in early and late February, GBP/USD staged a technical correction.

In case GBP/USD starts correcting higher, the Fibonacci 50% retracement level of the latest uptrend could act as first resistance near 1.2710 before the 100-period Simple Moving Average (SMA) at 1.2730 and 1.2750 (Fibonacci 38.2% retracement, descending trend line).

On the downside, 1.2670 (200-period SMA) aligns as key support before 1.2620 (Fibonacci 61.8% retracement) and 1.2600 (static level).

 

Fundamental Overview

Following Monday's indecisive action, GBP/USD lost its traction and dropped to its lowest level in nearly two weeks below 1.2700. The near-term technical outlook suggests that the pair is about to turn oversold.

The broad-based US Dollar (USD) strength continues to weigh on the pair ahead of the Federal Reserve (Fed) and the Bank of England (BoE) policy meetings. The benchmark 10-year US Treasury bond yield holds above 4.3% after rising over 5% in the previous week and supports the USD.

Meanwhile, US stock index futures turned negative on the day after rising marginally during the Asian trading hours. In case safe-haven flows start to dominate the financial markets after Wall Street's opening bell, the USD could preserve its strength and force GBP/USD to stay on the back foot. In the absence of high-tier data releases from the US, investors could continue to react to changes in risk perception in the near term.

Ahead of the Fed and the BoE policy decisions, the UK's Office for National Statistics will release Consumer Price Index (CPI) data for February early Wednesday. On a yearly basis, the annual CPI inflation in the UK is forecast to soften to 3.6% from 4% in January.

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