Reserve may consider tightening its monetary policy sooner than expected. The Consumer Price Index for March rose bysurpassing economists' expectations of increase. This uptick in inflation has fueled speculation that the Federal Reserve might raise interest rates sooner than previously anticipated to curb inflationary pressures. As a result, investors have been flocking to the US dollar, causing it to strengthen against its counterparts, including the British poundThe GBP/USD pair has been particularly sensitive to shifts in market sentiment surrounding interest rate expectations. The Bank of England (BoE), on the other hand, has maintained a relatively dovish stance, emphasizing the need to support the economic recovery amid lingering uncertainties surrounding Brexit and the global pandemic. This has created a divergence in monetary policy outlook between the two central banks, contributing to the pound's weakness against the dollarTechnical indicators also point to further downside potential for the GBP/USD pair.
The moving averages havecrossed bearishly, with the 50-day moving average trending below the 200-day moving average, indicating a bearish trend in the medium term. Additionally, the Relative Strength Index (RSI) is approaching oversold territory, suggestinhat the pair may be due for a temporary bounce. However, any upside momentum is likely to be limited, given the prevailing bearish bias in the marketIn terms of key support and resistance levels, the GBP/USD pair faces immediate support at the psychological level of 1.2500. A break below this level could pave the way for further losses towards the next support zone around 1.2400. On the upside, the pair would need to surpass the resistance near the 1.2600 level to regain bullish momentum. However, any upside move is likely to be capped by resistance around the 1.2700 level, where the 50-day moving average coincides with a previous support-turned-resistance levelThe ongoing geopolitical tensions between Russia and Ukraine have also added to the risk-off sentiment in the market, further supporting the US dollar's safe-haven appeal. Heightened geopolitical risks typically lead investors to seek refuge in safe-haven assets such as the US dollar, Japanese yen, and Swiss franc, at the expense of riskier currencies like the British poundLooking ahead, market participants will closely monitor upcoming
economic data releases and central bank speeches for further clues on monetary policy direction. Key data releases to watch include US retail sales, industrial production, and housing data, which could provide insights into the strength of the US economic recovery and inflationarypressures. Additionally, any developments on the geopolitical front could also influence market sentiment and the direction of the GBP/USD pairIn summary, the GBP/USD currency pair has been on a downward trajectory, driven by strong inflation data in the US and a relatively dovish stance from the Bank of England. Technical indicators suggest further downside potential for the pair, with key support levels around 1.2500 and 1.2400. Geopolitical tensions between Russia and Ukraine have also contributed to the risk-off sentiment in the market, supporting the US dollar's safe-haven appeal. Going forward, market participants will keep a close eye on economic data releases and central bank communications for further guidance on monetary policy direction and potential market movements.
