GBP/USD Forecast: inflation surges, Pound soars

The GBP/USD pair recovered the 1.2400 level early Tuesday, as the dollar eased particularly against its European rivals, following the first French presidential debate that brought relief to investors and generate demand for high yielding assets. But the pair broke higher and extended up to 1.2470 following the release of UK inflation data, as February CPI advanced more than expected, up 0.7% when compared to the previous month, and by 2.3% from a year earlier. Core yearly inflation surged to 2.0% from previous 1.6%, also above the expected 1.8%. Producer price inflation in the same month rose 3.7%, matching expectations yearly basis, while compared to the previous month advanced by 0.2%, below previous 0.6% and the expected 0.3%. Finally, the retail price index also beat expectations, up 3.2% when compared to February 2016, from previous 2.6% and the expected 2.9%.

The pair settled not far from the mentioned high, fueled by increasing hopes of an upcoming rate hike in the UK, moreover after the BOE's meeting outcome from last week, with one MPC member voting for a rate hike and the rest not far beyond.

From a technical point of view, the 4 hours chart shows that the price broke above the 38.2% retracement of the January rally, having held above a bullish 20 SMA, and with technical indicators heading north and nearing overbought levels. Nevertheless and given that the pair is at fresh monthly highs, and the initial pullback has remained quite shallow, the risk remains towards the upside. Beyond the mentioned daily high, the pair has scope to advance towards 1.2500, en route to 1.2535, the 23.6% retracement of the mentioned rally.

The immediate support comes at 1.2430, with a break below favoring a downward corrective movement towards  1.2385.

View live chart of the GBP/USD


Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these securities. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Forex involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.