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The British pound is quite vulnerable. After a false break of the double top at 1.6440, the pair continues sliding.

Inflation numbers came out marginally below expectations, but this miss was enough to trigger a drop to low support. Against the euro, GBP is already at lows seen over a month ago. Will GBP/USD break this support line?

The one hour chart shows how GBP/USD fell to 1.6250, a line that clearly separated trading range. The level was last seen in late November:

GBP USD Falls to low support December 17 2013 on weak CPI technical chart for forex traders

Further support is found at 1.6120, followed by the round number of 1.60. Resistance awaits at 1.63. For more levels, see the GBP/USD forecast.

Weaker, but healthy inflation

The Consumer Price Index was expected to remain at the same level seen last month: 2.2%. At the time it was a big downside surprise. And now, another drop was announced, to 2.1%.

The drop in the headline figure was accompanied by a lower than expected figure in the Retail Price Index (RPI). It remained at 2.6% instead of ticking higher to 2.7%. PPI Input fell by 0.7%, more than 0.5% expected.

Only PPI Output surprised to the upside with a drop of only 0.2% instead of 1.2% expected. Core CPI climbed to 1.8% expected.

It’s important to note that the BOE’s target is 2%, and the acceptable range is 1-3%. So, the headline number is well within the range. In addition, inflation in the UK is well above the levels seen in the euro-zone, Canada and Switzerland. Inflation in the US is at similar levels.

However, after the recent strength, sterling is weaker. It will be interesting to see the pound react to the FOMC decision.

More:  The Fed Taper Is Almost a Dead Certainty – But May Not Trigger a USD Rally Yet