British Pound Holds On Above $1.26, But Watch That Level Closely

British Pound (GBP) Outlook, Charts, and Analysis

• GBP/USD didn’t lose much when US PPI saw rate-cut expectations pushed back again
• It has risen a little further in Monday’s European session, but bulls look cautious
• Trendline support from 2022 is getting close

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The British Pound has managed modest gains against the United States Dollar as a new trading week kicks off in Europe on Monday.

There’s a lack of important economic data points at either side of GBP/USD this week, a fact which may just play out in Sterling’s favor.

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To be sure the Dollar got an across-board lift from numbers released late last week showing stubborn strength in US factory-gate prices. That was just the latest perky inflation print, adding to the markets’ growing impression that the Federal Reserve won’t be hurrying to cut borrowing costs. The Chicago Mercantile Exchange’s highly popular ‘Fedwatch’ tool finds no reduction fully priced until June now. Recall that a March move was thought possible as recently as the start of this year, so that’s quite a pushback.

Still, the Pound has its own interest-rate support, with the Bank of England also in no hurry to move. GBP/USD has clawed its way back above the $1.26 line which looks likely to be key to this week’s action.

There’s no first-tier UK data on tap this week, and the BoE doesn’t meet to set monetary policy again until February 1, so there’s a bit of a vacuum for the next few trading sessions. It’s likely to be filled by technical factors and broad Dollar moves, but, with Sterling hanging on at relatively elevated levels, that needn’t be bad news for GBP/USD bulls.

GBP/USD Technical Analysis

GBP/USD Daily Chart Compiled Using TradingView

The pair remains confined to a trading band that has been in place since late November, between December 28’s high of 1.28197 and important retracement support at 1.24927. Within that band, Sterling bulls are defending the 1.26 psychological level with some vigor as they attempt to reclaim the sharp falls seen in early February. February 5’s top of 1.2640 provides near-term support and the recent peak of 1.27689 will beckon if the markets can manage to sustainably top that level.

To the downside, that retracement looks solid enough but it’s worth bearing in mind that trendline support from all the way back to September 2022 is now coming back into view. It’s below the market at 1.24569 at the moment, but it is getting closer with time. It’s hard to say what a test of that line might mean, but the market did bounce there quite significantly in late October, paving the way for the climb to December’s highs.

–By David Cottle for DailyFX