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GBP/USD Outlook: BoE Facing an Uphill Task with Inflation

Date:

  • British surveys on business confidence and activity show a struggling economy.
  • The pound is on track for its fourth consecutive monthly surge versus the dollar.
  • The US gross domestic product expanded at an annualized rate of 2.9%.

Today’s GBP/USD outlook is bearish. Sterling maintained its stability on Friday but was on track to post its first weekly loss versus the dollar in a month as data this week highlighted the challenge the Bank of England faces in containing inflation without hurting a recession-hit economy.

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This week, several surveys on business confidence and activity depicted a picture of a struggling economy, with consumers and corporations feeling the pinch from double-digit inflation.

The pound’s value has fallen by about 0.1% against the dollar this week, marking its first weekly loss versus the dollar since the week ending December 23. With a rise of 2.5% in January, it is still on track for its fourth consecutive monthly surge versus the dollar. This is its best first-month performance since 2019.

This is more of a result of what investors think will happen to US and UK interest rates. The Fed is expected to raise rates by little more than half a percentage point before they reach a peak just below 5%.

The Bank of England, on the other hand, still has roughly one full percentage point before UK rates peak in August at about 4.4%.

According to the Commerce Department’s preliminary estimate of fourth-quarter GDP growth, the US gross domestic product expanded at an annualized rate of 2.9%. The economy expanded at a 3.2% annual rate in the third quarter. Markets had expected a 2.6% annual growth rate for the GDP.

GBP/USD key events today

Investors are awaiting the core PCE price index data and the pending home sales report from the United States.

GBP/USD technical outlook: Bulls losing steam at the 1.2401 resistance

GBP/USD outlook
GBP/USD outlook

The 4-hour chart shows GBP/USD trading between the 1.2401 resistance and the 30-SMA. The price is caught in this tight range with the RSI slightly above 50. Although bulls are in control, their strength is waning.

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The RSI shows weakness in the successive attempts to break above the 1.2401 resistance. This might also show that bears are getting stronger. If bulls cannot break above this strong resistance, bears might take over by pushing the price below the 30-SMA.

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