GBP to USD Forecasts: Bulls Eye Surge to $1.25 on US CPI Report

It is a quiet day ahead for the GBP/USD. There are no UK economic indicators for investors to digest later this morning.

The lack of stats will leave the GBP/USD in the hands of market risk sentiment through the morning. However, central bank commentary and the IMF/World Bank Spring Meetings will draw interest.

Bank of England Governor Andrew Bailey will speak this afternoon. The BoE Governor will provide remarks at the Institute of International Finance before speaking at the IMF/ World Bank meetings. Forward guidance on inflation, the UK economy, and monetary policy will move the dial.

On Tuesday, the IMF set the tone for the week, warning of the risks of a new crisis that could impact global growth. The IMF also called on central banks to continue to tighten monetary policy to tame inflation.

Despite better-than-expected UK economic indicators and the pickup in UK inflationary pressures, recent BoE commentary has been dovish, pegging the GBP/USD back from a return to $1.25.

Last Tuesday. MPC member Silvana Tenreyro talked about cutting rates earlier and faster. Tenreyro was also in focus on Wednesday, discussing the impact of a persistent rise in bank funding costs on the UK economy.

GBP/USD Price Action

This morning, the GBP/USD was up 0.11% to $1.24376. A mixed start to the day saw the GBP/USD fall to an early low of $1.24212 before rising to a high of 1.24403.

Technical Indicators

The Pound needs to avoid the $1.2420 pivot to target the First Major Resistance Level (R1) at $1.2461. A move through the Tuesday high of $1.24563 would signal an extended breakout session. However, the Pound would need hawkish BoE chatter and softer US inflation to support a breakout session.

In the event of an extended rally, the GBP/USD would likely test the Second Major Resistance Level (R2) at $1.2498 and resistance at $1.25. The Third Major Resistance Level sits at $1.2576.

A fall through the pivot would bring the First Major Support Level (S1) at $1.2383 into play. However, barring a Fed-fueled sell-off, the GBP/USD should avoid sub-$1.2350 and the Second Major Support Level (S2) at $1.2342. Third Major Support Level (S3) sits at $1.2264.

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 $1.24037. 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 the 50-day EMA ($1.24037) would support a breakout from R1 ($1.2461) to target R2 ($1.2498) and $1.25. However, a fall through the 50-day EMA ($1.24037) would give the bears a run at S1 ($1.2383) and the 100-day EMA ($1.23460). A fall through the 50-day EMA would send a bearish signal.

The US Session

Looking ahead to the US session, it is a busy day on the US economic calendar. The all-important US CPI report will be in focus.

With the markets betting on a 25-basis point Fed interest rate hike in May, a pickup in inflationary pressure could fuel fears of a more aggressive policy move. Economists forecast the US inflation rate to soften from 6.0% to 5.2% but for the core inflation rate to pick up from 5.5% to 5.6%.

While the CPI Report will influence, investors should consider the FOMC meeting minutes. However, hotter-than-expected inflation numbers could soften the impact of calls for a summer rate cut.

Investors should also monitor Fed chatter on monetary policy and the US economy.