GBP/USD Forecast: Sterling leaps off 100-DMA as UK inflation decelerates more than expected

  • The UK Labor party backs the Cooper amendment requiring the government to seek the extension of Article 50 in case of a no-deal Brexit. 
  • The UK headline inflation decelerated to 1.8% y/y in January keeping the pressure of the Bank of England to raise the Bank rate amid Brexit uncertainty.
  • Sterling leaped off 1.2883 representing the 100-day moving average (DMA) targeting 1.2850 and 1.2800 next.

The GBP/USD is trading little changed on the downside at around 1.2995 after the UK inflation data decelerated more than expected in January. The GBP/USD fell as low as 1.2832 on Tuesday just to recover above 1.2900 on general US Dollar weakness.

The UK headline inflation decelerated to 1.8% over the year in January as the oil prices keep the inflation pressures subdued amid tight labor market conditions. The core UK inflation remained unchanged at 1.9% y/y in January. Beyond the short-term inflation-taming effect of lower oil prices, domestic price pressures are building up keeping the expectations above the target.

The UK opposition Labor party spokesman said that his party will officially back Cooper amendment. The effort from Labor party comes as the UK strives hard to avoid a disorderly Brexit. The Cooper amendment will allow the lawmakers to pass the bill requiring Prime Minister Theresa May to seek an extension to Article 50 in the event of a no-deal Brexit.

While giving a public speech on Tuesday, the Bank of England Governor Mark Carney warned of risks of the economic slowdown and structural imbalances in China and the general trend of de-globalization are having a significant impact on the global economy with Brexit possible opening a new form of international cooperation and cross-border commerce.

Technically the GBP/USD is moving within a corrective trend after breaking the psychologically important 1.3000 and 38.2% Fibonacci retracement line of 1.2970 last week.

The technical oscillators like the Relative Strength Index (RSI) and Slow Stochastics (SS) are flat in the neutral territory while Slow Stochastics fell into the Oversold territory. The GBP/USD was unable to break 1.2800 representing a 50-DMA on a daily chart and retreated back above 1.2900 level. While 1.2883 representing a 100-DMA is the short-term target, the GBP/USD needs to slide towards 1.2800 to confirm the bearish trend. On the upside, 1.2970 is expected to hold as a resistance line.

GBP/USD daily chart


 

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