On Wednesday, the Pound Sterling (GBP) showcased a robust recovery following the release of unexpectedly resilient consumer price inflation data for December in the United Kingdom. The GBP/USD pair rebounded from earlier losses, with fading expectations of an imminent rate cut by the Bank of England (BoE) amid mounting inflationary pressures. The Consumer Price Index (CPI) surpassed projections, buoyed by a significant uptick in oil prices and a slight increase in service inflation.
The persistent elevation of inflation levels in the UK provides BoE policymakers with leeway to maintain the current interest rate of 5.25% for an extended period. Policymakers at the Bank of England have consistently cautioned against premature discussions of interest rate cuts, emphasizing that inflationary pressures remain well above the target rate of 2%.
Despite the Pound Sterling’s strong rebound, concerns linger as market sentiment adopts a cautious stance. The mood has turned somewhat pessimistic among investors, grappling with uncertainty regarding the timing of the Federal Reserve’s (Fed) potential initiation of a rate-cutting campaign. Looking ahead, market participants are closely eyeing the United States Retail Sales data for December, scheduled for release at 13:30 GMT.
In terms of technical analysis, the Pound Sterling exhibited a swift recovery, finding robust buying support near the key psychological level of 1.2600. The GBP/USD pair bounced back after testing the 50-day Exponential Moving Average (EMA) at 1.2600. Further positive momentum may be anticipated if the pair manages to surpass the 20-day EMA, currently situated around 1.2690.
Additionally, the GBP/USD pair has held steady above the 50% Fibonacci retracement level at 1.2590, marking a pivotal point in its recent price action. The 14-period Relative Strength Index (RSI) hovers in the 40.00-60.00 range, indicating a relatively neutral performance in the near term. Traders will likely monitor these technical indicators for potential shifts in market dynamics.