GBP/USD: Will CPI Halt the Advance?

11 окт. 2023 г.

The GBP/USD exchange rate found support at 1.2275 after a pullback from weekly highs. Following the release of the FOMC minutes, the US dollar experienced a moderate decline, pushing the GBP/USD pair back towards the 1.2300 level. Attention is now focused on the upcoming release of monthly GDP data in the UK and the Consumer Price Index (CPI) in the US scheduled for Thursday. GBP/USD remains above the ascending trend line, with the Relative Strength Index (RSI) on the 4-hour chart indicating a bullish trend, hovering around 60.

On the positive side, the main support level is at 1.2300, representing both a psychological level and a Fibonacci retracement of 38.2% from the latest downtrend. If the pair manages to surpass this level and stabilize, the next targets would be 1.2350 (a static level) and 1.2380, where the 200-period Simple Moving Average (SMA) is located.

On the downside, intermediate support levels are situated at 1.2250 (20-period SMA, ascending trend line), followed by 1.2200 (Fibonacci retracement of 23.6%, 100-period SMA) and 1.2175 (50-period SMA).

On Wednesday, GBP/USD rose above 1.2300 for the first time since September 22 but struggled to gather further bullish momentum. The shift in risk sentiment could limit the pair's upside in the short term. However, the US dollar (USD) may find it challenging to maintain its strength if policymakers convey dovish remarks.

Nevertheless, officials from the Federal Reserve in San Francisco, Mary Daly, and Atlanta, Raphael Bostic, both argued on Tuesday that the current policy is sufficiently restrictive to bring inflation back to the 2% target. Bostic emphasized that an additional rate hike was unnecessary, while Daly noted that the recent increase in US yields could be considered equivalent to another rate increase.

On a more hawkish note, Federal Reserve Governor Michelle Bowman stated that the policy rate might need to rise further and remain restrictive for some time to achieve the Fed's inflation target. She cited healthy spending activity and tight labor market conditions to support her position. This comment appears to be helping the US dollar maintain its position.

Meanwhile, US stock index futures remained virtually unchanged, indicating investors' reluctance to bet on an extended risk rally.

Later in the day, both Raphael Bostic from the Atlanta Federal Reserve and Christopher Waller from the Fed are scheduled to deliver speeches. Bostic has expressed a preference for keeping the policy rate steady, suggesting that his remarks are unlikely to trigger a significant market reaction. During Waller's last speech, he mentioned the need for more data to conclude whether the Fed was done raising rates. If Waller emphasizes that there is no immediate need for further tightening, the US dollar could continue to weaken against its rivals. Comment and leave a like, greetings from Nicola the CEO of Forex48 Trading Academy.