The GBP/USD currency pair is experiencing mixed trading signals, with some investors showing interest in buying on dips, although the current upward movement lacks strong bullish support. A slight weakening of the US dollar is helping to cushion the impact of disappointing consumer price inflation (CPI) data from the UK. However, concerns surrounding stagflation and fiscal issues in the UK may limit the British pound’s (GBP) advancement ahead of the upcoming US CPI report.
Despite a minor recovery from earlier lows around the 1.2100 level — its lowest point since November 2023 — the GBP/USD pair faced selling pressure. The recent dip was exacerbated by the release of UK consumer inflation numbers, while the sluggish US dollar provided some relief, allowing prices to recover slightly from the mid-1.2100 range.
Data from the UK’s Office for National Statistics indicated that the headline CPI increased by only 2.5% year-over-year in December, underperforming expectations of a rise to 2.7% from 2.6% in November. Additionally, core inflation, which excludes volatile food and energy prices, rose by 3.2%, a decline compared to 3.5% in November and below forecasts. These softer figures potentially create room for the Bank of England to consider cutting interest rates in its upcoming February meeting, adding to existing concerns about the UK’s fiscal stability and the broader economic climate.
On the US side, the dollar has slipped to a weekly low following the release of a lower-than-expected Producer Price Index (PPI) for December, complicating predictions about the Federal Reserve’s interest rate strategy. With expectations growing that the Fed may pause its current rate-cutting approach, traders are likely to exercise caution ahead of the imminent US consumer inflation report, which will be a critical factor in shaping the interest rate outlook.
From a technical viewpoint, the GBP/USD is currently trading above the 23.6% Fibonacci retracement level of its recent decline. For bullish momentum to solidify, prices need to surpass the 100-hour Exponential Moving Average, situated near the 1.2240 area. A successful break could propel the pair towards further resistance levels at 1.2280 and 1.2300. Conversely, if prices fall below the 1.2200 level, buyers may still be drawn to the 1.2150 – 1.2140 zone. Continued selling pressure may drive the pair to test the critical 1.2100 level, which, if breached, could trigger heightened bearish activity and extend the current downtrend.
