• GBP/USD has turned south after UK inflation data.
  • The near-term technical outlook points to a bearish tilt. 
  • The pair could fall toward 1.2120 in case buyers fail to reclaim 1.2200.

GBP/USD has met fresh bearish pressure early Wednesday and declined below 1.2200. The risk-averse market environment and soft inflation data from the UK weigh on the pair mid-week and the technical outlook suggests that additional losses are likely in the short term.

The UK's Office for National Statistics (ONS) showed on Wednesday that the annual inflation in the UK, as measured by the Consumer Price Index (CPI), edged higher to 9.1% in May as expected. On a positive note, the Core CPI, which excludes volatile food and energy prices, declined to 5.9% on a yearly basis from 6.2% in April. 

According to Reuters, the odds of a 50 basis points (bps) Bank of England (BOE) rate hike in August declined toward 60% from 74% after the CPI data, suggesting that investors are reassessing the BOE's rate outlook.

In the meantime, the souring market mood is putting additional weight on GBP/USD on Wednesday. UK's FTSE 100 Index is down more than 1% and US stock index futures are falling between 1.5% and 2%. 

Later in the day, FOMC Chairman Jerome Powell will present the Semiannual Monetary Policy Report on the first day of his testimony before the US Congress. Inflation will undoubtedly be the main topic of conversation. The current market positioning suggests that a 75 bps July hike is nearly fully priced in, not leaving much room for a hawkish surprise. Nonetheless, the dollar could continue to find demand as a safe haven in case Wall Street's main indexes suffer heavy losses after the opening bell.

GBP/USD Technical Analysis

GBP/USD broke below the ascending trend line after the UK inflation data and closed below the 20-period SMA on the four-hour chart for the first time in a week. Although these developments point to a bearish tilt in the near-term outlook, sellers could wait until 1.2200 (Fibonacci 38.2% retracement of the latest downtrend, 50-period SMA) is confirmed as resistance. In that scenario, additional losses toward 1.2120 (Fibonacci 23.6% retracement) and 1.2100 could be witnessed.

On the other hand, 1.2250 (20-period SMA) forms interim resistance ahead of 1.2280 (Fibonacci 50% retracement, ascending trend line) and 1.2300 (psychological level).

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