GBP to USD Forecasts: A Return to $1.2250 US CPI Report Dependent

It is a busy day ahead for the GBP/USD. UK wage growth, claimant count, and unemployment numbers will be in the spotlight. With the Bank of England looking to curb wage growth to support an inflation return to target, hotter-than-expected wage growth figures and a fall in the UK unemployment rate would support a more hawkish BoE.

Economists forecast wage growth + bonus to increase by 6.2% year-over-year versus 6.4% in November. However, economists expect wage growth ex-bonus to rise by 6.5% versus 6.4% in November.

While economists expect the UK unemployment rate to hold steady at 3.7%, claimant counts could also move the dial. A sharp increase in claimant counts would signal a rise in the UK unemployment rate in Q1 2023. Economists forecast claimant counts to increase by 40k in January versus a 27k rise in December.

With the stats on the heavier side, investors also need to consider Monetary Policy Committee member speeches. However, with no MPC members on the BoE calendar to speak today, investors need to monitor commentary with the media.

Last week, Chief Economist Huw Pill pointed out that the Bank must continue to tackle upside inflation risks despite an extended period of weakness in the UK economy. Monetary Policy Committee Member Jonathan Haskel took a more hawkish line, favoring more forceful action. A pickup in wage growth would support Haskel’s more hawkish stance.

GBP/USD Price Action

At the time of writing, the GBP/USD was up 0.04% to $1.21400. A mixed start to the day saw the EUR/USD fall to an early low of $1.21213 before rising to a high of $1.21403.

Technical Indicators

The Pound needs to avoid a fall through the $1.2106 pivot to target the First Major Resistance Level (R1) at $1.2181. A move through the Monday high of $1.21519 would signal an extended breakout session. However, the Pound would need economic indicators and hawkish MPC member chatter to support a breakout session.

In the event of an extended rally, the GBP to USD would likely test the Second Major Resistance Level (R2) at $1.2227 and resistance at $1.2250. The Third Major Resistance Level sits at $1.2349.

A fall through the pivot would bring the First Major Support Level (S1) at $1.2060 into play. However, barring a data-off-fueled sell-off, the GBP/USD should avoid sub-$1.1950. The second Major Support Level (S2) at $1.1985 should limit the downside.

The Third Major Support Level (S3) sits at $1.1863.

Looking at the EMAs and the 4-hourly chart, the EMAs send a mixed signal. The GBP/USD sits below the 100-day EMA, currently at $1.21727. The 50-day EMA flattened on the 200-day EMA, while the 100-day EMA converged on the 200-day EMA, delivering mixed signals.

A move through the 200-day ($1.21727) and 100-day ($1.21767) EMAs and R1 ($1.2181) would give the bulls a run at R2 ($1.2227) and $1.2250. However, a fall through the 50-day EMA ($1.21322) would support a fall through S1 ($1.2060) to bring S2 ($1.1985) into view.

The US Session

It is a big day on the US economic calendar. The heavily anticipated US CPI Report will be the report of the day.

An unexpected pickup in inflationary pressure would weigh on the GBP/USD and riskier assets. Economists forecast the US annual inflation rate to soften from 6.5% to 6.2%.

With inflation in focus, investors also need to monitor FOMC member chatter. FOMC members Logan and Williams will speak today.