GBP/USD: Sterling touches key support as UK inflation rises to March 2012 high

FXStreet Team FXStreet

Sterling initially jumped up 30 pips to $1.3370 against the US Dollar after the UK inflation rose to the highest level since March 2012, but soon after lost the steam and retreated back to lows of $1.3320.

Rising inflation in the UK is one of the key reasons why the Bank of England could have turned more hawkish in future and increase the Bank rate.

Technically, $1.3320 is seen as a very important support level that represents 50% Fibonacci retracement of the up[move on GBP/USD starting at $1.2770 in late August and peaking at $1.3660 in middle of September.

The Office for National Statistics said earlier on Tuesday that the UK inflation accelerated to 3.1% over the year in November with the largest contributor being the air fares and rising prices for a range of recreational and cultural goods and services, most notably computer games.

With the UK CPI at above 1% tolerance band tracking 2% inflation target, the Bank of England Governor Mark Carney will now have to write an explanatory letter to Philip Hammond, the UK Chancellor of Exchequer saying what are the means of the Bank to bring the inflation in the UK back into target.

Technical Outlook

With the GBP/USD breaking the Brexit related uptrend, the currency pair is now trading sideways, currently at $1.3320 low. With the US Federal Reserve rate hike widely expected and priced in, the economic fundamental including tomorrow’s UK labor market report will set the direction. Technical oscillators are now depressed on 4-hour chart, with Slow Stochastics already signaling GBP/USD in an oversold position. Momentum is pointing upwards from within negative territory and the Relative Strength Index is neutral indicating consolidation going further.

Should GBP/USD close below $1.3320 on Tuesday, next target of around $1.3220 can be expected.

Author

FXStreet Team

FXStreet

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