GBPUSD Heads South As January US Inflation Beats Estimates-What Could Change?

Summary:

GBPUSD is on a downside drive following an above-estimate US CPI figure on Tuesday, but things could change when UK inflation data comes out.

GBPUSD experienced volatility in the afternoon London session before settling lower, as traders weighed in on positive UK jobs data and January US inflation data release. The currency pair was trading at a 24-hour low of 1.2590 at 13:35 UTC, having shed -0.29%. Notably, the British pound’s exchange rate against the US dollar has registered daily highs of 1.2692 and lows of 2.2589, exhibiting volatility leading up to the CPI release.

The US Bureau of Labour and Statistics released a higher-than-expected January Core Consumer Price Index (CPI) at 08.30 EST. The headline CPI for consumer goods (excluding food and energy prices) rose +0.4% to 3.5% in January beating the consensus forecast of +0.3%. Furthermore, the figure rose to 3.9% year-on-year, exceeding the forecast figure of 3.7%.

The forecast-beating CPI figure has created a bullish momentum around the US dollar, as it cements the likelihood of the Fed retaining high interest rates for longer. The Fed has recently reiterated that it is in no hurry to raise interest rates, as it prioritises bringing down inflation to 2.0%. Therefore, as the US economy continues to heat up, we will likely witness more upside action by the dollar.

The GBP had found some ground a few minutes before the release of US inflation data, thanks to an earlier release that showed a decline in its December unemployment rate from the forecasted 4.0% to 3.8%. However, the market has predictably opted to favour the US dollar after the US CPI release. Nonetheless, the pound will have its chance to turn the tables on Wednesday when the Office for National Statistics releases UK’s CPI figures for January and for the previous 12 months.

Technical analysis

GBPUSD will likely establish a pivot at 1.2611, with the RSI signaling downside momentum. A move below the pivot point will have the first support at 1.2577. However, a breach below that level could push the support further down to 1.2536. Alternatively, the currency pair will need to hover above 1.2611 to find upside momentum. This will set up the first resistance at 1.2646, beyond which the price could test 1.2675.