GBP/USD Technical Analysis: Overbought Levels

During this week’s trading, the bulls succeeded in pushing the price of the GBP/USD pair, towards the 1.2435 resistance level. This is its highest in a month, before settling around 1.2325 at the time of writing the analysis, waiting for anything new. Sterling’s cautious gains eased after UK inflation fell for the second month in December, boosting hopes that the worst cost of living crisis in a generation may begin to abate.

British inflation remains five times higher than the government’s 2% target and has triggered a wave of strikes by public sector workers angry that their wages are not keeping up with the pace of price increases. This made Prime Minister Rishi Sunak halving inflation one of his five major pledges for the year. These figures are the last time BoE officials will see them before the next interest rate decision in February. Some economists have begun to talk about ending the cycle of tightening imposed by the Bank of England, which has generated the fastest rise in prices in three decades.

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The British pound rose following the data, reflecting optimism that the British economy may not be hit as hard as forecasters previously thought. The general inflation rate was in line with economists’ expectations. For his part, British Chancellor of the Exchequer Jeremy Hunt said he had more to do to lower the cost of living. “High inflation is a nightmare for household budgets, destroying business investment and triggering strike action, and so however challenging it may be, we need to stick to our plan to bring it down,” Chancellor of the Exchequer Jeremy Hunt said in a statement. “.

The cost of motor fuel has fallen, along with the prices of clothes and shoes. Food costs have accelerated at the fastest pace since records began in 1989, a concern for low-income families who spend a larger percentage of their income on necessities like food. Confirming concerns about persistent inflation, a core price measure that excludes energy, food, alcohol, and tobacco prices, it was unchanged at 6.3%. Inflation in the services sector accelerated to 6.8%.

For its part, the British central bank has raised interest rates nine consecutive times since December 2021 and is expected to offer another half point to 4% next month. Investors expect rates to peak at around 4.5% by the middle of the year. Officials are trying to avoid a wage-price spiral in which workers pay salaries because they expect high inflation to continue, prompting companies to raise prices even more. While inflation is slowing, it remains near four-decade highs and is unlikely to return to the target until 2024 or beyond.

GBP/USD forecast today:

• According to the performance on the daily timeframe chart, the GBP/USD recent gains moved the technical indicators towards overbought levels.
• Therefore, the selling opportunity will be stronger from the continuation of the recent rebound.
• I expect to think about that from the resistance levels 1.2390 and 1.2475, respectively.
• Pessimistic expectations for the future of the British economic recovery will weaken the path of the rise of the Sterling.

On the other hand, and for the same period of time, the stability of the GBP/USD pair below the support level at 1.2180 will be important for the bears to control the trend again. The currency pair will be affected by the rest of the US economic data release today.

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