GBP/USD: bearish bias with potential to the 1.2253 the 18th January low

Currently, GBP/USD is trading at 1.2447, down -0.17% on the day, having posted a daily high at 1.2483 and low at 1.2383.

GBP/USD is consolidating around the mid point of the 1.24 handle after a turbulent session between recent ranges while markets reacted to US inflation and sales data that strengthened the case for a March hike. "Market pricing has shifted to about 42-48% probability of a March hike. Data wise, US inflation rose substantially more than expected in January, helped by a 4.0%MoM rise in energy prices. "Headline inflation is now 2.5%YoY.

But what is perhaps more eye-catching, is that core inflation defied expectations for a slight pull back, and drove up to 2.3%YoY, explained analysts at ING, adding, "We expect the Fed’s preferred measures of inflation, the PCE indices, to move in a similar fashion, and there is every chance now that the Fed’s longer run objective of 2.0% PCE inflation is met or exceeded before their March 15 FOMC meeting."

Following today's jobs data in the UK, with “headline” jobs growth coming in at 37k in the three months to December, the analyst also don’t think the Bank will move away from its “neutral stance” any time soon. They don’t anticipate any change in Bank rate in the next 2 years. "Markets are currently pricing a 26% chance of a hike by the end of 2017. 

Near Term Outlook:

Analysts at Scotibank have a neutral to negative outlook: "We are unable to rule out another run up to the top of the channel at 1.2694. The near-term risk is that this will again hold. A close below the 55 day ma will introduce potential to the 1.2253 the 18th January low. The intraday Elliott counts remain negative and our bias is neutral to negative. We suspect that prices will need to go sub 1.2250 in order to alleviate immediate upside pressure and trigger losses to the 1.1988/80 recent low."