GBP/USD Forecast: Lower US inflation pushes Sterling to 6-week high targeting 1.3170

  • While the Bank of England opting for a wait-and-see mode after August rate hike was widely expected, the US inflation miss on the downside boosted Sterling.
  • The Bank of England Governor Mark Carney is not expected to voice a different message than yesterday’s Monetary Policy Committee. 
  • GBP/USD stays in the upward rising trend with 55-period moving average active support and target of 1.3170 representing 50% Fibonacci retracement from 1.2030 to cyclical peak of 1.4377.

The GBP/USD is trading up 0.2% at around 1.3130, reaching the highest level in six weeks on Friday ahead of the Bank of England Governor Mark Carney speaking at the Whitaker Lecture at the Bank of Ireland, in Dublin. The GBP/USD was boosted on Thursday by the US inflation missing on the downside with markets pricing in the lower probability of Fed hiking four times this year.  

The Bank of England meeting on Thursday was a non-event in terms of the currency market reaction with Bank staying on the sidelines after the August rate hike and repeatedly highlighted the no-deal Brexit concerns. 

Sterling benefitted from the massive US Dollar re-pricing in the aftermath of the US inflation report that saw both headline and core inflation decelerating below expectations with markets discounting the chances Fed hiking rates four times lower. 

Technically, the picture on GBP/USD is pretty much unchanged with the market breaking above the FXStreet technical confluences indicator showing a cluster of technical levels around 1.3030-1.3050 with 1.3170 a new target on the upside. The 1.3170 level represents an important resistance zone because it matches the 50% Fibonacci retracement of Sterling rising from 1.2030 to a cyclical high from April 17 at 1.4377. The 55-period moving average still acts as an active support along with the trendline staring at last week’s low of 1.2785.

On the downside, psychological support is at 1.3100 which is the confluence of last month’s high and a daily pivot point.

GBP/USD 1-hour chart

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