GBP/USD contained in low 1.3100s ahead of US data, 21DMA continues to act as resistance

Amid a lack of fresh UK fundamental developments to drive any independent movements in sterling, and as US dollar markets consolidate ahead of key US data releases as market participants monitor geopolitical developments, GBP/USD is trading subdued in the low-1.3100s. At current levels in the 1.3120s, the pair trades flat and well within this week’s approximate 1.3050-1.3200 ranges. Notably, the 21-Day Moving Average continues to act as a barrier to further progress for the pair, suggesting the near-term technical bias remains tilted to the downside.

Many strategists have noted the stark divergence between the BoE, which has been sounding ever more dovish on the need for further tightening as worries switch more to economic weakness as a result of the growing cost-of-living squeeze in the UK as opposed to rampant inflation, and Fed. Indeed, further strong data releases this week plus more hawkish rhetoric from monetary policymakers has solidified expectations for a 50 bps rate hike in May. Though this hasn’t prevented some month-end weakness in the US dollar and yields, the combination of which helped lift GBP/USD from earlier weekly lows in the mid-1.3000s, it is likely a key factor preventing the pair from advancing above its 21DMA.

US February Core PCE inflation data, February Personal Income and Spending figures and the latest Weekly Jobless Claims report will all be released at 1330BST. The data is likely to underpin the narratives of high inflation/a tight labour market in the US, meaning further USD weakness is unlikely. In the absence of further pricing out of geopolitical risk related to the Russo-Ukraine war, GBP/USD’s near-term upside prospects look somewhat limited.