GBP to USD Forecasts: A Return to $1.25 in the Hands of US Inflation

It is a quiet day ahead for the GBP/USD. There are no UK economic indicators for the markets to consider today. The lack of stats will leave the GBP/USD in the hands of market risk sentiment through to the US session.

While there are no stats, updates on Brexit and sentiment toward BoE monetary policy will provide direction. On Tuesday, a Reuters Poll projected the BoE to lift rates by 50 basis points in February and 25 basis points in March before pausing.

Reportedly, 29 respondents favored a 50-basis point interest rate hike against a 25-basis point move. The last time the interest rate stood above 4.00% was in 2008. However, the expectation of a less severe economic downturn was a positive takeaway from the poll.

While investors consider the policy outlook, no Monetary Policy Committee Members are speaking today, leaving investors to monitor chatter with the media.

GBP/USD Price Action

At the time of writing, the Pound was down 0.08% to $1.23955. A mixed start to the day saw the GBP/USD rise to an early high of $1.24188 before falling to a low of $1.23943.

Technical Indicators

The Pound needs to avoid a fall through the $1.2393 pivot to target the First Major Resistance Level (R1) at $1.2443. A move through the Thursday high of $1.24303 would signal an extended breakout session. However, the Pound would need US stats to be Pound-friendly 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 $1.2480 and $1.25. The Third Major Resistance Level sits at $1.2566.

A fall through the pivot would bring the First Major Support Level (S1) at $1.2357 into play. However, barring a data-fueled sell-off, the GBP/USD should avoid sub-$1.23. The second Major Support Level (S2) at $1.2307 should limit the downside.

The Third Major Support Level (S3) sits at $1.2221.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The GBP/USD sits above the 50-day EMA, currently at $1.23338. The 50-day EMA pulled further away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above S1 ($1.2357) and the 50-day EMA ($1.23338) would support a breakout from R1 ($1.2443) to target R2 ($1.2480) and $1.25. However, a fall through S1 ($1.2357) and the 50-day EMA ($1.23338) would bring S2 $1.2307 into view. A fall through the 50-day EMA would send a bearish signal.

The US Session

It is a busy day ahead on the US economic calendar. Core PCE Price Index and personal spending and income numbers for December will draw plenty of interest. An unexpected pickup in inflationary pressure and a more marked rise in personal income could question the market bets of a Fed pivot.

Later in the US session, consumer sentiment figures will also provide direction. Revisions to prelim figures would move the dial.

While it is a busier day on the economic calendar, no FOMC members are speaking today. The Fed entered the blackout period on Saturday, January 21.