GBP/USD Price Analysis: Neutral at 1.34, Eying US/UK PMI, Ukraine

• The GBP/USD has weakened last week’s rally from 10-week lows by breaking a two-day winning streak.
• In the UK, public expectations for inflation lead to calls for the Bank of England to raise rates, but inflation expectations in the US do not support a 0.50% rate hike.
• Despite global sanctions, Russia extends its invasion of Ukraine despite the withdrawal of EU funding for British scientists.

The GBP/USD price analysis tells nothing at the moment as the rangebound behavior persists amid geopolitical uncertainty. During the Asian session on Tuesday, the GBP/USD price is near an intraday low of 1.34005. The cable pair has consolidated monthly losses in the past two days before reversing.

Cable buyers have recently benefited from a drop in the US dollar and a growing chance of hawkish action by the Bank of England (BOE) in upcoming meetings. However, the recent rebound of the US dollar and concerns about Ukraine-Russia relations have cast doubt on recovery efforts.

Reuters reported Citibank and YouGov’s 5-10 year inflation expectations rose to 4.1% from 3.8% in January. Using CME’s BOEWatch tool to increase the likelihood of a rate hike is supported by positive inflation data.

Similarly, today’s UK Manufacturing PMI for February is expected to arrive at 57.3, giving shoppers a sense of hope.

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The US dollar follows US Treasury yields and inflation expectations to reverse its earlier losses. The previous day’s yield on the 10-year US Treasury note fell the most since early December 2021, rising by two basis points to 1.86%. By the end of Monday’s North American session, the 10-year breakeven inflation rate at the St. Louis Federal Reserve (FRED) rose 2.62% to its highest level since Nov. 23. CME FedWatch estimates a nearly 5.0% chance that the Fed will hike rates by 0.5% in March, down from more than 50% in just a few days. The Atlanta Fed’s Rafael Bostic reflects on this, saying, “Today, I’m for a 25 basis point hike at the March meeting.”

Further, a pause in EU funding for UK research due to Brexit is combined with a blockade at the Northern Ireland (NI) border to test the bulls of GBP/USD.

About the confrontation between Russia and Ukraine, peace talks ended the day before without any update but were left open for discussion. Further, Russia’s criticism of Western sanctions, combined with the military invasion of Kyiv, suggests that geopolitical risks are far from abating, which in turn fuels US dollar demand as a safe-haven asset.

Today’s ISM US Manufacturing PMI, and the State of the Union (SOTU) address from US President Joe Biden will provide fresh impetus to GBP/USD rates on top of geopolitical and Brexit headlines.

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GBP/USD price technical analysis: Consolidation phase

The GBP/USD price is wobbling around the 20-period SMA on the 4-hour chart. The pair has strong technical support from the widespread up bar rising from the 10-week lows. However, the hidden upthrust bars with high volume have been trying to aid the bears. Therefore, the overall consolidation phase will remain in place as long as the market awaits catalysts.