The GBP/USD exchange rate declined for the fifth consecutive day, settling at 1.3445. The deceleration in headline price growth has heightened anticipations of a forthcoming rate reduction by the Bank of England, despite persistent underlying price pressures. In January, annual inflation decelerated to 3.0%, down from 3.4% in December, aligning with expectations. Nonetheless, inflation within the services sector, indicative of domestic price pressures, decreased marginally to 4.4% from 4.5%, surpassing the anticipated 4.3%. This provided partial support for the pound. Previously, the pound experienced a decline following disappointing labor statistics that heightened anticipations of a potential interest rate reduction. Chris Turner noted that the market had anticipated a more significant deceleration in inflation; however, the data did not present a clear indication of weakness. A stronger-than-anticipated reading for services provided sterling with “only limited respite.”
Market participants currently assign an approximately 85% probability to the likelihood of a 25 basis point reduction in interest rates by the Bank of England in the upcoming month. By the end of the year, the market has fully incorporated expectations for two 25 basis point reductions. The political landscape continues to introduce an element of unpredictability. The forthcoming parliamentary by-election in Greater Manchester has the potential to rekindle debates surrounding Prime Minister Keir Starmer’s leadership should Labour face a setback. ING suggests that a significant defeat for the party may heighten pressure on the pound and the government bond market. The H4 chart exhibits a clear downtrend. Following a succession of lower highs, the pair surpassed the 1.3490–1.3500 range and intensified its descent to 1.3430–1.3440. The price trajectory aligns with the lower band of the Bollinger Bands, indicating a prevailing influence of sellers in the market.
Local rebound attempts exhibit fragility and are promptly met with selling pressure. The closest resistance is positioned between 1.3490 and 1.3520, with a subsequent level at 1.3660. Support is positioned at 1.3430; a breach beneath this level would pave the way for additional declines. The H1 time frame indicates a significant sell-off on 19 February, succeeded by a period of tight consolidation at the lower levels. The Bollinger Bands have started to contract, indicating a reduction in volatility following the recent pronounced movement. The price is maintaining a position around 1.3430–1.3450. A sustained move above 1.3490 would facilitate a more significant corrective pullback. The bearish scenario persists as the pair continues to trade beneath 1.3490.
In conclusion, GBP/USD is firmly positioned within a prolonged downtrend, marking its fifth consecutive session of losses. Although headline inflation has eased as anticipated, persistent services inflation and robust underlying pressures create complexities for the Bank of England’s policy considerations. The market is decisively positioned for a March rate cut, while political risks contribute to the prevailing uncertainty. From a technical perspective, the pair has broken through significant support levels and is exhibiting a distinct bearish trend. Any corrective bounces are likely to be limited around 1.3490–1.3520, with a breach below 1.3430 paving the way for more significant declines. The short-term perspective continues to be decidedly pessimistic unless prices manage to recover the 1.3490 threshold.