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GBP/USD at risk?

H.S. Borji
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The British pound rose Tuesday, but the outlook continued to dim as consumer inflation eased to a fresh four-year low.

UK inflation eased further in February, rising 1.7 percent annually, the Office for National Statistics reported today in London. Consumer inflation in January eased below the Bank of England’s 2 percent target for the first time since 2009, reinforcing the central bank’s latest decision to hold off on raising interest rates.

Since the BOE’s last decision, the dynamics governing the British pound have changed. The latest shuffle in the Monetary Policy Committee could spark a substantial shift in the central bank’s policy outlook. Until now, the BOE has stressed the need to keep monetary policy ultra accommodative to account for the underlying slack in the economy.

Although it seems unlikely the BOE will do much to halt the rise of the British pound, the central bank’s emphasis on exports has already lessened sterling’s appeal. Combined with the Federal Reserve’s tentative rate-hike timetable, the presumed bullishness of the GBPUSD pair may be at risk.

The GBPUSD was trading at 1.6532 ahead of North America’s noon hour. This represents a gain of more than 0.2 percent. The 4-hour chart shows initial support at 1.6480. On the upside, technical resistance is likely found at 1.6555. The pair was well supported amid a faster than expected pickup in US consumer confidence. US consumer confidence rebounded this month, as expectations concerning the short-term outlook improved.

In other trading, the pound strengthened against its major European rival. The EURUSD pair was trading half a percent lower at 0.8345.

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