Pound Sterling bulls seem hesitant ahead of UK CPI; GBP/USD capped near 200-day SMA

GBP/USD regains positive traction as hopes for a de-escalation of the Iran war weigh on the USD.
Bets that the BoE could hike interest rates in April act as a tailwind for the GBP and spot prices.
Traders now look forward to the latest UK consumer inflation figures for short-term opportunities.

Haresh Menghani FXStreet

The GBP/USD pair attracts fresh buyers during the Asian session on Wednesday, with bulls still awaiting a sustained strength beyond the 200-day Simple Moving Average (SMA) before placing fresh bets. Spot prices currently trade around the 1.3420-1.3425 region, up 0.10% for the day, as the focus now shifts to the UK consumer inflation figures.

The UK Office for National Statistics (ONS) will publish the Consumer Price Index (CPI) for February at 07:00 GMT later today amid the Bank of England's (BoE) hawkish outlook. Last week, the UK central bank signaled the potential rate hike as early as April amid inflation fears stemming from the Iran war. This, in turn, suggests that the market reaction to the data is more likely to be short-lived, leaving the GBP/USD pair at the mercy of the US Dollar (USD) price dynamics and geopolitical developments.

Reports indicate that diplomatic efforts are underway to establish a one-month ceasefire mechanism between the US and Iran. This raises hopes for a de-escalation of tensions, boosting investors' confidence. Furthermore, softer Oil prices ease inflationary concerns and trigger a further pullback in US Treasury bond yields. This, in turn, undermines the Greenback's reserve currency status and acts as a tailwind for the GBP/USD pair, though the lack of follow-through buying warrants some caution for bulls.

Hence, it will be prudent to wait for a sustained breakout through a technically significant 200-day SMA before positioning for an extension of the recent recovery from the year-to-date low, touched earlier this month. Nevertheless, the aforementioned fundamental backdrop seems tilted in favor of bullish traders and backs the case for a further near-term appreciating move.

Economic Indicator

Consumer Price Index (YoY)

The United Kingdom (UK) Consumer Price Index (CPI), released by the Office for National Statistics on a monthly basis, is a measure of consumer price inflation – the rate at which the prices of goods and services bought by households rise or fall – produced to international standards. It is the inflation measure used in the government’s target. The YoY reading compares prices in the reference month to a year earlier. Generally, a high reading is seen as bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.

Why it matters to traders?

The Bank of England is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI) at around 2%, giving the monthly release its importance. An increase in inflation implies a quicker and sooner increase of interest rates or the reduction of bond-buying by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price rises indicates looser monetary policy. A higher-than-expected result tends to be GBP bullish.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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