GBP/USD Forecast: Pound Sterling rally loses steam after UK inflation data

GBP/USD declined after meeting resistance near 1.2500 in the European morning.
Inflation in the UK softened at a faster pace than expected in October.
The pair's losses could remain limited in the near-term amid broad USD weakness.

Eren Sengezer FXStreet

GBP/USD registered impressive gains on Tuesday and rose above 1.2500 for the first time in two months. With the Pound Sterling losing some interest following the UK inflation data early Wednesday, the pair erased a small portion of its recent gains.

The UK's Office for National Statistics reported that the Consumer Price Index (CPI) rose 4.6% on a yearly basis in October, much softer than the 6.7% increase recorded in September. In the same period, the Retail Price Index rose 6.1%, compared to 8.9% in September, and the Producer Price Index - Input declined 2.6%.

Despite these numbers, GBP/USD's losses remain limited as the US Dollar (USD) struggles to find demand on growing market expectations for a Federal Reserve (Fed) policy shift in the second half of 2024.

The annual CPI inflation in the US fell to 3.2% in October from 3.7% in September, while the Core CPI edged lower to 4% from 4.1%. Wall Street main indexes gathered bullish momentum and the benchmark 10-year US Treasury bond yield dropped below 4.5% after these data on Tuesday, triggering a USD selloff.

In the second half of the day, the US economic docket will feature Retail Sales and Producer Price Index (PPI) data for October. At the time of press, US stock index futures were up between 0.3% and 0.5%. A continuation of the risk rally in the American session could help GBP/USD regain its traction.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) on the 4-hour hart retreated to 70 early Wednesday after rising above 80 on Tuesday, suggesting that the latest pullback was a part of a technical correction. On the downside, 1.2430 (static level) aligns as first support before 1.2400 (static level, psychological level) and 1.2350 (upper limit of the broken ascending regression channel).

Strong resistance for the pair is located at 1.2500 (psychological level, Fibonacci 38.2% retracement of July-October downtrend) before 1.2540 (static level from September) and 1.2600 (Fibonacci 50% retracement).

Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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