GBP/USD Eyes December High amid Ascending Channel Formation

British Pound Outlook: GBP/USD

GBP/USD trades to a fresh weekly high (1.2647) following the kneejerk reaction to the rise in the UK Consumer Price Index (CPI), and the exchange rate may attempt to further retrace the decline from the December high (1.2812) as it appears to be trading within an ascending channel.

GBP/USD Eyes December High amid Ascending Channel Formation

Keep in mind, GBP/USD closed above the 50-Day SMA (1.2465) for the first time since October as it retraced the decline following the Bank of England (BoE) rate-cut, and it seems as though the exchange rate will no longer track the negative slope in the moving average even as the central bank insists that ‘a gradual and careful approach to the further withdrawal of monetary policy restraint is appropriate.’

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However, signs of persistent inflation may sway the BoE as the UK CPI climbs to 3.0% in January from 2.5% per annum the month prior, with the core rate widening to 3.7% from 3.2% during the same period.

UK Economic Calendar

In turn, the BoE may move to the sidelines at its next rate decision on March 20 as ‘monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further,’ and it remains to be seen if the update to the UK Retail Sales report will influence the central bank as household spending is expected to increase 0.3% in January following the 0.3% contraction the month prior.

Meanwhile, a rebound in UK household spending may keep GBP/USD afloat as raises the Monetary Policy Committee’s (MPC) scope to further combat inflation, but a weaker-than-expected retail sales report may drag on the British Pound as it fuels speculation for another BoE rate-cut.

With that said, GBP/USD may consolidate over the remainder of the week as it fails to extend the series of higher highs and lows from last week, but the exchange rate may further retrace the decline from the December high (1.2812) as it appears to be trading within an ascending channel.

GBP/USD Price Chart –Daily

Chart Prepared by David Song, Senior Strategist; GBP/USD on TradingView

GBP/USD appears to be trading within an ascending channel as it climbs to a fresh weekly high (1.2647), with a break/close above the 1.2710 (23.6% Fibonacci extension) to 1.2760 (61.8% Fibonacci retracement) zone bringing the December high (1.2812) on the radar.
A breach above 1.2820 (38.2% Fibonacci extension) opens up the 1.2900 (23.6% Fibonacci retracement) to 1.2910 (50% Fibonacci extension) area, but lack of momentum to break/close above the 1.2710 (23.6% Fibonacci extension) to 1.2760 (61.8% Fibonacci retracement) zone may pull the exchange rate back towards channel support.
GBP/USD may threaten the ascending channel should it fail to hold above the 1.2390 (38.2% Fibonacci extension) to 1.2446 (May low) region, with the next area of interest coming in around 1.2300 (50% Fibonacci retracement) to 1.2310 (61.8% Fibonacci extension)

Additional Market Outlooks

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US Dollar Forecast: EUR/USD Rally Stalls Ahead of January High

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--- Written by David Song, Senior Strategist

Follow on Twitter at @DavidJSong

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