Market Overview

The British Pound seems to be performing an unexpected rally amid moderately strengthening of the U.S. Dollar. The Cable rose to new January highs at 1.3710 on Wednesday. Such levels have not been seen since April 2018.

The reason for the rally is most likely a higher than expected inflation of 1.4% YoY in the United Kingdom. The CPI index in December was also higher than expected at 0.6% vs 0.3% last November. The inflation rose after the UK government lifted some traveling restrictions amid overall national quarantine. 

Investors may consider such recent inflation rates as indications that the Bank of England may use as a reason not to strengthen monetary stimulus measures at its meeting on February 4. Moreover, the United Kingdom has significantly speeded up its COVID-19 mass vaccination process as it has provided some 4.27 million citizens with the first shot of vaccine. This is one of the best result per capita worldwide. Nonetheless, any further movements of the Cable could be linked to the U.S. Dollar and inclinations to risks. So, a technical picture may be of major importance at the moment.

The uptrend is clearly prevailing at the moment, but may be stopped at the strong resistance level at 1.3710-1.3720. It the Pound rebounds from this level, a possible correction to 1.3520-1.3570 may occur. Several intermediate lows are located at this level along with the Fibonacci retracement level of 38.2% from the last movement momentum. The Pound may rebound upward at this level. In case of breaking through the resistance at 1.3720 and securing it as a support, the Cable may have a 1.4000 level as a new target.

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Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.