Pound drifting ahead of UK inflation

The British pound is steady in the Tuesday session. Currently, GDP/USD is trading at 1.3908, up 0.03% on the day.

UK Inflation Looms

The UK releases a host of inflation indicators on Wednesday (7:00 GMT). The highlight events are headline and Core CPI for January. Headline CPI rose to 0.6% in December and is projected to maintain this clip in January. Core CPI is projected to come in at 1.3%, down slightly from 1.4% in the previous release. These are lukewarm numbers, well below the Bank of England’s inflation target of 2 percent. With the UK still under lockdown due to Covid-19, it’s no surprise that inflation remains low.

At the same time, there is more talk of reflation in the US as the economy inevitably recovers, and we can expect a similar trend in the UK when the country reopens. An ING note stated that it expects headline inflation to rebound to the 2% level by the end of 2021, but will then drift lower in 2022, since it expects the spike in consumer spending to be limited. ING added that investors need not worry about the BoE resorting to negative interest rates, but it does not expect any tightening in policy prior to 2023.

Pound closing in on 1.40

It has been a productive February for the British pound, which is up 1.5% this month. On Tuesday, GBP/USD touched a high of 1.3951, its highest level since April 2018. Sterling has since retreated closer to the 1.39 line, but the currency appears has positive momentum and could make a run towards the 1.40 level, which has psychological significance. The 1.40 level was last breached in April 2018.

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GBP/USD Technical

• GBP/USD is testing resistance at 1.3915. Above, there is resistance at 1.3985
• There is support at 1.3734. Below, we find support at 1.3615
• The 50-day MA (moving average) follows at 1.3605

For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-events/

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