The British Pound strengthened against its major counterparts following the release of the UK Consumer Price Index (CPI) data for January, which indicated a sharper-than-expected rise in inflation. Headline CPI increased by 3% year-on-year, surpassing the 2.8% forecast and the previous reading of 2.5%. Meanwhile, core CPI, which excludes volatile components such as food and energy, climbed to 3.7% from 3.2%, in line with expectations.
Inflation and BoE Policy Outlook
Month-on-month, CPI declined at a slower-than-anticipated rate of 0.1%, following December’s 0.3% rise. Services inflation, closely monitored by the Bank of England (BoE), accelerated to 5% from 4.4% in December. Despite the stronger inflation data, BoE policymakers have signaled that short-term price pressures, primarily driven by energy costs, are unlikely to persist. Governor Andrew Bailey reiterated that inflation remains on a gradual downward trend, with economic sluggishness acting as a counterbalance.
While rising inflation may limit the BoE’s ability to ease monetary policy, markets will closely watch upcoming UK retail sales and PMI data for further economic signals.
Pound Sterling Gains Ahead of FOMC Minutes
The Pound edged higher to 1.2630 against the US Dollar during Wednesday’s European session as the USD traded weakly ahead of the Federal Open Market Committee (FOMC) minutes release. Investors are looking for insights into how long the Federal Reserve plans to maintain interest rates within the 4.25%-4.50% range. Fed Chair Jerome Powell has suggested that further monetary adjustments will depend on sustained disinflation or labor market weakness.
Adding to market uncertainty, former US President Donald Trump proposed a 25% tariff on imports of automobiles, semiconductors, and pharmaceuticals, raising concerns about potential global economic repercussions.
Technical Outlook: Pound Sterling Holds Above 1.2600
GBP/USD remains above the critical 1.2600 level, testing the 38.2% Fibonacci retracement near the 100-day Exponential Moving Average (EMA) at 1.2620. The 14-day Relative Strength Index (RSI) has climbed above 60.00, signaling potential bullish momentum.
Key support is seen at the February 3 low of 1.2250, while resistance stands at the 50% Fibonacci retracement level of 1.2767.
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