GBP/USD Forecast: Rising Inflation, Weaker US Yields to Limit Losses

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  • GBP/USD bulls pause ahead of 1.3650 as USD buyers come back.
  • Rising inflationary pressure may positively impact the pound.
  • Fed’s meeting next week holds the key importance.

The GBP/USD price forecast shows a slightly negative bias as the pair pauses its rally below 1.3650, plunging towards the intraday lows of 1.3608.

Following the release of official UK inflation data on Wednesday, the pound rose on expectations of a rate hike. However, Boris Johnson’s post-Partygate leadership problem kept the pound on a tight leash.

Last month, the UK’s cost-of-living crisis worsened as inflation accelerated to 5.4%, its highest level since 1992.

The Office for National Statistics released data that increased pressure on the Bank of England (BoE) to increase borrowing costs at its February meeting.

Bank of England Governor Andrew Bailey told a parliamentary committee that rising inflationary pressures could be more persistent than originally thought.

According to Mr. Bailey, the rise in natural gas prices since the latest Bank of England meeting is an example of inflation that could drag on.

An indicator of the UK property market showed that house prices continued to rise quickly in December as demand outpaced supply.

According to the Royal Institution of Certified Surveyors’ house price report, 69% of members reported rising house prices last month, up from 71% in November, but still at historically high levels.

The chief economist at RICS, Simon Rubinson, said: “What is more worrying is that a mismatch between supply and demand may drive home prices even higher in 2022.”

US Treasury yields fell on Wednesday after hitting roughly two-year highs on 2-year and 10-year bonds the previous day. However, the greenback remains well supported despite interest rate speculation as the Federal Reserve raises borrowing costs in March.

Next week, the Federal Open Market Committee will likely announce the date by which quantitative easing will end, which is expected in March. It is also possible that the US Federal Reserve will signal an increase in March after the end of quantitative easing.

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The US Census Bureau released data on Wednesday showing that housing starts rose to a nine-month high last month. The number of new residential buildings increased by 1.4% yearly to 1.702 million units seasonally adjusted in December – the highest level since March. Philadelphia will release its January Manufacturing Survey and initial jobless claims for the week ending Jan. 14.

GBP/USD price technical forecast: Bears not giving up

gbp/usd price forecast

The GBP/USD price finds tough resistance at the confluence of the 20-period and 50-period SMAs on the 4-hour chart. The price attempted to rally yesterday but paused ahead of the 1.3650 zone. Now the price is heading lower towards the daily lows of 1.3608. Further bearishness may lead towards 1.3580 and 1.3540.

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The volume data shows a downside bias while the average daily range is 48%, showing room for further volatility.

About Saqib Iqbal PRO INVESTOR

Saqib Iqbal is a market analyst, prop fund trader and mentor, serving the industry with his analysis and educational content since 2011. The author has great exposure to different financial markets and institutions. He's well-known for his day trading reviews and multiple timeframe analysis.