Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2300.
- Add a stop-loss at 1.2540.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2450 and a take-profit at 1.2550.
- Add a stop-loss at 1.2300.
The GBP/USD exchange rate wavered after the Jerome Powell’s first day of testimony in Congress. It remained at 1.2400, where it has been stuck at in the past few days, and 2.7% above the lowest point this year.
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US inflation data ahead
The GBP/USD pair remained in a tight range after Jerome Powell insisted that the Fed was not in a hurry to slash interest rates. In a Senate testimony, he said that the committee believes that the economy is strong enough to sustain elevated interest rates.
Powell also noted that inflation was still a big issue since its movement towards 2% had stalled. The most recent report showed that the headline Consumer Price Index (CPI) rose from 2.7% in November to 2.9% in August. Core inflation remained above 3% even as it dropped slightly to 3.2%.
Powell’s testimony came as the Bureau of Labor Statistics (BLS) prepared to publish the January consumer inflation report. Economists expect the data to show that the headline CPI remained at 2.9%, while the core CPI moved to 3.2%.
His views were shared by Beth Hammack, a Fed official who said that the Fed should leave rates on hold until inflation slowed further.
The US economy is facing substantial inflation risks. Donald Trump has imposed a 25% tariff on imported steel and aluminum. He has also levied a 10% tariff on Chinese imports, and is considering imports on Canadian and Mexican goods.
These tariffs will likely lead to higher inflation since companies will likely pass them to consumers. There is a possibility that the economy will slow as consumers and businesses wait for trade deals.
The Fed’s view is different from that of the Bank of England (BoE), which has committed to slash interest rates to supercharge the struggling economy.
GBP/USD technical analysis
The daily chart shows that the GBP/USD pair has remained under pressure in the past few days after finding resistance at 1.2550. It has moved below the 50-day moving average and the strong, pivot, reverse point at 1.2450.
The bearish view is also confirmed by the fact that the pair has remained below the Ichimoku cloud indicator.
Therefore, the pair will remain in a downward trend as long as it is below the key resistance level at 1.2500. More downside may see it drop to the next point at 1.2300. A break above the resistance level at 1.2545 will point to more upside.
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