The GBP/USD pair snapped a five-day losing streak on Tuesday, bouncing back from its 15-month low of 1.2099 recorded on Monday. During the Asian trading session, the pair climbed above the 1.2200 mark as the British Pound (GBP) found support from improved investor confidence.
Investor Confidence Rises Amid Trade Policy Speculation
Reports that US President-elect Donald Trump’s economic team is weighing a phased implementation of import tariffs bolstered global investor sentiment. The strategy aims to prevent a sharp inflation spike while allowing for smoother trade policy adjustments, according to Bloomberg.
UK Stagflation Risks Weigh on Sterling
Despite the rebound, the GBP remains under pressure due to concerns about stagflation in the UK. Persistent inflation combined with stagnant economic growth has heightened worries about the country’s fiscal health.
A recent surge in UK government bond yields has compounded fears, as investors continue to sell off gilts in response to mounting debt, economic stagnation, and inflation risks. These factors have limited the Pound’s upside momentum.
US Dollar Holds Firm Near Recent Highs
The US Dollar Index (DXY) eased slightly from its 14-month high of 110.18 but remains strong near 109.60. The USD has been bolstered by robust labor market data, which reinforced expectations that the Federal Reserve will maintain its current interest rate levels in January.
US Treasury yields have also climbed, with the 2-year yield reaching 4.42% and the 10-year yield hitting 4.80% as of Monday. This rise reflects the hawkish Fed outlook and has kept the Greenback near its recent highs.
Focus Turns to US Inflation Data
Investors are now looking ahead to the US Producer Price Index (PPI) data for December, which is expected to provide further clues on inflation trends and the Federal Reserve’s policy trajectory.
Outlook for GBP/USD
Support Levels: The GBP/USD pair may find immediate support near the 1.2170-1.2150 region. A break below 1.2150 could expose the 1.2100 psychological level, revisiting Monday’s low of 1.2099.
Resistance Levels: On the upside, resistance lies around 1.2240, followed by a more substantial barrier near 1.2300. A sustained move above 1.2300 could open the door for further recovery.
The GBP/USD pair’s direction will likely hinge on upcoming US inflation data and the broader risk sentiment in the market. Stagflation fears in the UK and persistent USD strength remain key challenges for the Pound.
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