- GBPUSD has gone into a consolidation phase following Tuesday’s volatile action.
- US Dollar could weaken if market mood continues to improve.
- BOE Governor Bailey will testify before the Treasury Select Committee.
GBPUSD has failed to capitalize on the hot UK inflation data early Wednesday and has gone into a consolidation phase slightly below 1.1900. The technical outlook suggests that sellers remain on the sidelines but the pair could find it difficult to gather bullish momentum unless it flips 1.1900 into support.
The UK’s Office for National Statistics reported that annual inflation in the UK, as measured by the Consumer Price Index (CPI), jumped to its highest level since 1981 at 11.1% in October from 10.1% in September. Further details of the report revealed that the annual Retail Price Index climbed to 14.2% from 12.6% and the Producer Price Index (PPI) – Input edged lower to 19.2% from 20.8%.
Ahead of Bank of England (BOE) Governor Bailey’s testimony before the UK Treasury Select Committee, however, hot inflation data had little to no impact on the Pound Sterling’s (GBP) performance against its major rivals.
Following the BOE’s decision to hike its policy rate by 75 basis points (bps) on November 3, Bailey noted that the policy rate will have to go up further but noted that the terminal rate is likely to be lower than what’s priced in markets. In case Bailey reaffirms that stance despite the stronger-than-expected CPI data, the Pound Sterling could find it difficult to gather strength. Nevertheless, market participants could refrain from making large bets before the UK Autumn Budget is unveiled on Thursday.
Later in the day, the US Census Bureau will release the Retail Sales data for October, which is expected to grow by 1% on a monthly basis. According to the CME Group FedWatch Tool, markets are pricing in a more than 80% probability of a 50 bps Federal Reserve (Fed) rate hike in December and the sales report is unlikely to influence the market positioning in a significant way. Hence, the risk perception could drive the US Dollar’s (USD) market valuation in the second half of the day.
Following a sharp decline witnessed in the early Asian session amid escalating geopolitical tensions, US stock index futures moved into positive territory during the European trading hours. If Wall Street’s main indexes open decisively higher, GBPUSD could capitalize on the renewed selling pressure surrounding the USD.
GBPUSD Technical Analysis
GBPUSD stays above the 10-period Simple Moving Average (SMA) on the four-hour chart and the Relative Strength Index (RSI) indicator holds comfortably above 50, pointing to a lack of seller interest.
On the upside, strong resistance seems to have formed at 1.1900. In case the pair rises above that level and starts using it as support, it could target 1.2000 (psychological level, static level) and 1.2030 (November 15 high).
1.1850 (static level) aligns as interim support before 1.1820 (20-period SMA). With a four-hour close below the latter, additional losses toward 1.1800 (psychological level) and 1.1750 (static level) could be witnessed.