- The Fed still has work to do in taming inflation.
- Fed officials’ hawkish remarks have supported the US dollar.
- It is widely anticipated that the British economy will enter a recession this year.
Today’s GBP/USD outlook is bearish. Market expectations that the Fed has more work to control inflation and to hike rates have gone up. A slew of recent data from the world’s largest economy point to a still-tight jobs market, still-high inflation, robust retail sales growth, and higher monthly producer prices.
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The US dollar has also been supported by Fed officials’ hawkish remarks, which suggested that higher rates will be necessary to tame inflation properly.
Although British consumers unexpectedly increased their buying in January, the overall picture still shows poor demand from households struggling with inflation and turning increasingly to retailer discounts to make ends meet.
According to official figures released on Friday, sales volumes increased by 0.5% from December, marking only the second month-over-month gain since August 2021. Economists had expected sales to decrease by 0.3% last month.
Sales decreased by 5.1% in January 2023 compared to January 2022, marking the longest run of annual declines since the global financial crisis of 2008–2009.
Under the weight of the price spike, it is widely anticipated that the British economy will enter a recession this year. Moreover, last month’s consumer confidence index from the polling company GfK revealed that householders were almost at their most pessimistic since 1974.
GBP/USD key events today
There won’t be any significant news releases from the UK while the US observes a public holiday which will likely cause the pair to consolidate.
GBP/USD technical outlook: Caught in a tight range
The 4-hour chart shows GBP/USD trading slightly below the 30-SMA and the RSI slightly above 50, indicating that bulls are getting stronger. Bulls have also shown strength by making strong candles pushing the price closer to the pivotal 30-SMA resistance.
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The price is also on the verge of breaking above a strong support and resistance zone comprising the 1.2000 and 1.2040 levels. A break above this zone and the 30-SMA will indicate a bullish takeover. However, the price might fail to go above the 30-SMA, which would likely mean a retest of the 1.1905 level.
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Saqib Iqbal
