GBP to USD Forecasts: Sub-$1.2350 in the Hands of Inflation and the BoE

It is a busy day for the GBP/USD. The all-important UK CPI Report will be in focus this morning. After disappointing private sector PMI numbers from Tuesday, sticky inflation could force the Bank of England into an aggressive monetary policy move to tame inflation.

Economists forecast the UK annual inflation rate to soften from 10.1% to 8.3% and core inflation to weaken from 8.5% to 7.3%. Hotter-than-expected inflation numbers could cement a June interest rate hike and force the markets to consider further monetary policy tightening and the rising threat of a Bank-of-England-induced economic recession.

With UK inflation in focus, investors should also monitor BoE commentary. Bank of England Governor Andrew Bailey is on the calendar to speak today. Governor Bailey will deliver a keynote speech at the Mansion House Net Zero Delivery Summit before a fireside chat at the Wall Street Journal CEO Council Summit ‘Inflation and the economy.’

GBP to USD Price Action

This morning, the GBP/USD was up 0.05% to $1.24171. A mixed start to the day saw the GBP/USD fall to an early low of $1.24086 before rising to a high of $1.24295.

Technical Indicators

Resistance & Support Levels

The Pound needs to avoid the $1.2410 pivot to target the First Major Resistance Level (R1) at $1.2448. A move through the Tuesday high of $1.24465 would signal an extended breakout session. However, the Pound would need the CPI Report, central bank chatter, and US debt ceiling-related news 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 $1.2484 and resistance at $1.25. The Third Major Resistance Level sits at $1.2558.

A fall through the pivot would bring the First Major Support Level (S1) at $1.2374 into play. However, barring another risk-off-fueled sell-off, the GBP/USD should avoid sub-$1.2350 and the Second Major Support Level (S2) at $1.2336. The Third Major Support Level (S3) sits at $1.2262.

Looking at the EMAs and the 4-hourly chart, the EMAs send bearish signals. The GBP/USD sits below the 200-day EMA, currently at $1.24553. The 50-day EMA closed in on the 200-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bearish signals.

A move through R1 ($1.2448) and the 200-day EMA ($1.24553) would give the bulls a run at the 50-day ($1.24627) and 100-day ($1.24821) EMAs and R2 ($1.2484). However, failure to move through the 200-day EMA ($1.24553) would leave S1 ($1.2374) in view. A move through the 50-day EMA would send a bullish signal.

The US Session

Looking ahead to the US session, it is a quiet day on the US economic calendar. There are no US economic indicators for investors to consider.

However, the FOMC meeting minutes will draw interest late in the US session with US debt ceiling-related news and US Treasury Secretary Janet Yellen also in focus.

According to the CME FedWatch Tool, the probability of a 25-basis point Fed interest rate hike in June stood at 28.1%, up from 25.7% on Monday. The better-than-expected US private sector PMI numbers and progress toward a debt ceiling deal could substantially increase the chances of a June interest rate hike.