GBP/USD faces mild losses amid market risk aversion

With losses averaging approximately -0.40%, the GBP/USD pair is trading close to the 1.2695 mark. The US dollar appeared to have recovered from Monday’s earlier decline. Following mixed data last week, markets recalculated Fed expectations as investors focused more on the impending CPI report.

The GBP/USD pair saw a decline in Tuesday’s trade, closing at 1.2705 amid a steadily rising US dollar and a growingly risk-averse market environment. Markets are anticipating the publication of the Consumer Price Index (CPI) data numbers for the US for the last month of 2023 on Thursday, as there were no pertinent reports released during the session.

Bets on monetary policy have been the primary driver of the pair’s recent upward movement. Even if wage growth and inflation seem to be slowing down, the Bank of England has stuck to its plan to raise interest rates further, while the US Federal Reserve could begin its cycle of rate cuts as early as March.

Additionally, the markets are pricing in five rate cuts this year, but ultimately, the easing schedule will be determined by the incoming data. Economic indicators will be the deciding factor in this regard.

The US will release the Consumer Price Index for December on Thursday. It is anticipated to increase somewhat from November’s 3.1% to 3.2% YoY. Nonetheless, the core annual reading is expected to be 3.8%, indicating a minor decrease from the 4% reading in November, which would persuade the Fed to begin its easing cycle soon. The pair might continue rising if the CPI reports lower than anticipated.

There is a clear bullish undertone to the pair, according to the daily chart. Although it looks to be flat, the Relative Strength Index (RSI) is currently in positive territory, indicating a brief balance in buying and selling activity. This pause in the bullish momentum corresponds with the Moving Average Convergence Divergence (MACD) printing flat red bars at this time, suggesting that sellers are still in control but not with a stronger push.

Though there are some short-term negative signs, looking at the bigger picture reveals that the bulls are still in charge. A significant bullish indication at the longer time frame is the pair’s comfortable positioning above the 20, 100, and 200-day Simple Moving Averages (SMAs). In this bullish environment, any pullbacks could be seen as buying opportunities unless there are notable bearish shifts in the trend dynamics.