GBP/USD Forecast: Pound Sterling stabilizes above key support

GBP/USD reversed its direction after dipping below 1.2700 and closed in positive territory above 1.2750 on Thursday. The positive shift seen in risk mood supports the pair on Friday as markets await Producer Price Index (PPI) data from the US.

The data from the US showed on Thursday that the Consumer Price Index (CPI) increased 3.4% on a yearly basis in December, coming in above the November print and the market expectation of 3.1% and 3.2%, respectively. The Core CPI, which excludes volatile food and energy prices, rose 0.3% on a monthly basis.

Inflation figures provided a boost to the US Dollar (USD) with the initial reaction but they seemingly failed to persuade markets that the Federal Reserve (Fed) could refrain from lowering the policy rate in March. The CME FedWatch Tool still shows that markets are pricing in a nearly 70% chance that there will be a 25 basis points rate cut in March and the benchmark 10-year US Treasury bond yield stays below 4%.

The UK's Office for National Statistics (ONS) reported early Friday that the Gross Domestic Product (GDP) grew by 0.3% on a monthly basis in November. This reading followed the 0.3% contraction recorded in October and helped Pound Sterling stay resilient against the USD. In the meantime, the UK's FTSE 100 Index is up 0.8%, reflecting an upbeat market mood in the European session.

Annual producer inflation in the US, as measured by the change in the PPI, is expected to climb to 1.3% in December from 0.9% in November. The USD's reaction to inflation data on Thursday suggests that it will take a significant increase in the PPI to convince investors that the Fed will delay the policy pivot toward the end of the second quarter.

GBP/USD Technical Analysis

GBP/USD stays above the lower limit of the ascending regression channel and the Relative Strength Index (RSI) indicator moves sideways above 50, pointing to a bullish bias in the near term.

1.2780 (static level) aligns as interim resistance before 1.2830 (end-point of the latest uptrend, December 28 high) and 1.2860 (mid-point of the ascending channel).

On the downside, supports are located at 1.2750 (lower limit of the ascending channel), 1.2710-1.2700 (100-period Simple Moving Average (SMA), static level) and 1.2670 (200-period SMA).