Pound Feeble Despite Upbeat UK GDP, Overshadowed by Stronger Greenback | Errante
Market Overview
The GBP/USD price ticked higher in the previous trading session, marking a brief high above the 1.2500 handle. The pound has been given some life thanks to the fresh Ukraine-Russia peace talks and upbeat UK GDP data. However, the pair remains under pressure as the dollar’s broader strength caps further gains.
Fundamental Analysis
The recent US inflation data reported on Wednesday had significantly impacted the sentiment and outlook of the pound. The CPI rose to 3% y/y in January, exceeding expectations and reinforcing the concerns about persistent inflation. The Core CPI, excluding food and energy, also rose to 3.3%, strengthening the argument for keeping rates higher for longer. Yields rose quickly along with the dollar, while risk assets plunged due to the hotter CPI.
For the GBP/USD pair, the immediate impact was bearish. However, it was short-lived amid broader cautious sentiment. FOMC remains committed to raising inflation to 2%, suggesting the next cut further late into 2025. Hence, the BoE and Fed rate differential favors GBP/USD sellers.
Meanwhile, the UK economy remains in bad shape as the growth is stagnant. The UK GDP for the fourth quarter came at 0.4%, exceeding expectations. However, it revealed underlying weaknesses in consumption and investment. The Bank of England could be reluctant to tighten further with inflation still above the targets and slower growth. Hence, the pound’s gains remain capped.
Technical Analysis
The GBP/USD pair broke the previous day’s high of 1.2482, establishing a weekly high at 1.2516 at the time of writing. Following this peak, the pair retraced lower, confirming a bearish order block around 1.2485, which now serves as a resistance level. Support is identified at 1.2446, a level of significance from prior day and representing the 50% Fibonacci extension of the recent bullish impulse leg.
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