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  • Britain still faces the threat of ongoing inflationary pressure due to a tight labor market.
  • Markets anticipate the BoE will increase rates to 4% at its next meeting.
  • Markets currently forecast BoE rates to peak at 4.5% in June.

Today’s GBP/USD outlook is bullish. Huw Pill, the chief economist at the Bank of England, stated on Monday that Britain still faces the threat of ongoing inflationary pressure even if natural gas prices stabilize or decline. This is due to a tight labor market and suggests additional rate increases may be required.

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Pill’s speech, the first on monetary policy by a BoE official this year, comes as economists and markets wonder how close the BoE is to reaching the end of its cycle of rate increases.

Financial markets anticipate the BoE will increase rates to 4% at its next policy announcement on February 2. The central bank boosted its benchmark interest rate to 3.5% in December from 0.1% a year earlier.

While economists surveyed by Reuters in December expected a peak of 4.25% in the second quarter of 2023, markets currently forecast BoE rates reaching a peak of 4.5% in June.

Britain’s economy appears to be heading into a brief recession, and inflation has decreased somewhat from a 41-year high of 11.1% in October.

The BoE had predicted that once natural gas prices level off this year, overall inflation will decline. The price of natural gas in Britain has decreased to a level similar to that of a year ago after rising in response to Russia’s invasion of Ukraine in February.

GBP/USD key events today

Investors will pay close attention to a speech given by Fed Chair Jerome Powell later today, which could provide more insight into the forecast for the Fed’s path of rate hikes.

GBP/USD technical outlook: Bears might not go beyond the 1.2101 support

GBP/USD outlook

GBP/USD has paused at the 1.2200 resistance level in the 4-hour chart. This comes after a strong bullish move that put the price far above the 30-SMA and the RSI above 50. Currently, the price is pulling back and might retest the recently broken 1.2101 key level.

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However, bulls are still stronger, so the price might not break below this level. The bulls will likely return and attempt a break above the 1.2200 resistance. Bears will only take over if the price breaks below the 30-SMA.

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