GBP/USD Forecast: Pound Sterling struggles to benefit from hot inflation data

After having climbed to a fresh daily high above 1.2470 in the early European morning on Wednesday, GBP/USD has retreated to the 1.2450 area. Although the strong inflation data from the UK helps Pound Sterling stay resilient against its major rivals, the negative shift witnessed in risk mood could make it difficult for GBP/USD to gather bullish momentum.

The UK's Office for National Statistics (ONS) announced on Wednesday that the annual Consumer Price Index (CPI) declined to 10.1% in March from 10.4%. This reading came in stronger than the market expectation of 9.8%. Additionally, the Core CPI held steady at 6.2% on a yearly basis while the annual Retail Price Index edged slightly lower to 13.5%, compared to the market expectation of 13.3%.

According to Reuters, markets are now fully pricing in a 25 basis points (bps) Bank of England rate increase in May. 

Hot inflation data seem to be hurting the risk mood mid-week. At the time of press, the UK's FTSE 100 Index was losing nearly 0.5% and US stock index futures were down between 0.4% and 0.6%.

In the absence of high-tier macroeconomic data releases from the United States, the US Dollar could continue to gather strength if safe-haven flows dominate the market action in the second half of the day.

In the late American session, the Federal Reserve's (Fed) Beige Book will be watched closely by market participants. Nevertheless, this publication is unlikely to change the fact that markets widely expect the Fed to opt for one more 25 bps hike at the upcoming meeting.

GBP/USD Technical Analysis

GBP/USD holds above the 20-period and the 50-period Simple Moving Averages (SMA) on the four-hour chart. The pair, however, lost its traction after having met resistance at 1.2470, where the lower limit of the ascending regression channel is located.

In case the pair rises above 1.2470 and starts using that level as support, it could push higher toward 1.2500 (psychological level, static level) and 1.2550 (mid-point of the ascending channel).

On the downside, first support is located at the 1.2430/1.2420 area (20-period SMA, 50-period SMA, 100 period SMA) before 1.2400 (psychological level, static level) and 1.2370 (Fibonacci 23.6% retracement of the latest uptrend).