Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.3350.
- Add a stop-loss at 1.3550.
- Timeline: 1-3 days.
Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.3550.
- Add a stop-loss at 1.3350.
The GBP/USD exchange rate has retreated sharply in the past few weeks, moving from the year-to-date high of 1.3865 to the current 1.3478. It retreated after the UK published encouraging consumer inflation data on Wednesday.
UK Inflation Report Fuels BoE Rate Cut Hopes
The GBP/USD pair retreated after the UK released the latest consumer inflation report, which showed that prices grew at a slower pace in January.
The report by the Office of National Statistics (ONS) showed that the headline Consumer Price Index (CPI) dropped sharply to 3% in January from the previous 3.4%. It has now dropped in the past few months, moving closer to the Bank of England (BoE) target of 2.0%.
A separate report released earlier during the week showed that the labor market worsened, with the unemployment rate rising to a five-year high of 5.2%.
Therefore, these numbers mean that the BoE will cut interest rates by 0.25% in the next meeting in a bid to boost economic growth.
The GBP/USD pair also retreated after the US published the latest GDP data, which estimated that the economy grew by 1.4% in the fourth quarter, down from 3-3% in the third quarter. Most of this slowdown was because of the longest government shutdown.
The pair is also reacting to the potential conflict between the US and Iran, which will lead to higher inflation in the US and other countries as crude oil prices jump. It will also react to the newly launched 15% global tariffs under the Section 122 of the 1974 Trade Act.
GBP/USD Technical Analysis
The daily timeframe chart shows that the GBP/USD pair has retreated sharply in the past few weeks, moving from a high of 1.3866 in January to the current 1.3478. It has dropped below the key support level at 1.3782, its highest level on July 1.
It has dropped below the 50-day Exponential Moving Average (EMA) and the psychological level at 1.3500. Also, the Relative Strength Index (RSI) and the MACD indicators have moved downward.
Therefore, the pair will likely continue falling as sellers target the key support level at 1.3350, its lowest level on January 19. On the other hand, a move above that key resistance level at 1.3600 will invalidate the bearish outlook.