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.

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