Pound Sterling remains on the back foot against USD, moves little after UK CPI report

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The GBP/USD pair once again faces rejection near a technically significant 200-day Simple Moving Average (SMA) and turns lower for the second consecutive day on Wednesday.

GBP/USD meets with a fresh supply after failing to make it through the 200-day SMA.
Geopolitical uncertainties and inflation fears underpin the USD, weighing on the pair.
The UK CPI comes in line with market expectations and does little to influence the GBP.

The GBP/USD pair once again faces rejection near a technically significant 200-day Simple Moving Average (SMA) and turns lower for the second consecutive day on Wednesday. Spot prices stick to modest intraday losses below the 1.3400 mark through the early European session and react little to the latest UK consumer inflation figures.

The UK Office for National Statistics (ONS) reported that the headline Consumer Price Index (CPI) rose 3.0% over the year in February, matching the previous month's reading and consensus estimates. Furthermore, the core CPI, which excludes volatile food and energy items, also came in line with expectations and climbed 3.2% YoY from 3.1% in January. The data validates the Bank of England's (BoE) hawkish outlook, though fails to provide any impetus to the British Pound (GBP) or the GBP/USD pair amid the emergence of some US Dollar (USD) buying.

Despite reports that diplomatic efforts are underway to establish a one-month ceasefire mechanism between the US and Iran, the conflict, so far, has shown no signs of easing. In fact, Israel continues with its strikes on the Islamic Republic, while the Trump administration has directed thousands of soldiers from the US Army's elite 82nd Airborne Division to the Middle East. This keeps geopolitical risks in play, which, in turn, supports the safe-haven buck amid emerging bets for rate hikes by the Federal Reserve (Fed) and weighs on the GBP/USD pair.

Meanwhile, the UK central bank last week signaled the potential rate hike as early as April amid inflation fears stemming from the Iran war. This might hold back traders from placing aggressive bearish bets around the GBP, warranting some caution before positioning for any further depreciating move for the GBP/USD pair. That said, a sustained strength and acceptance above the 200-day SMA is needed to back the case for any meaningful upside in the near-term.

Economic Indicator

Core Consumer Price Index (YoY)

The United Kingdom (UK) Core Consumer Price Index (CPI), released by the Office for National Statistics on a monthly basis, is a measure of consumer price inflation – the rate at which the prices of goods and services bought by households rise or fall – produced to international standards. The YoY reading compares prices in the reference month to a year earlier. Core CPI excludes the volatile components of food, energy, alcohol and tobacco. The Core CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.

Why it matters to traders?

The Bank of England is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI) at around 2%, giving the monthly release its importance. An increase in inflation implies a quicker and sooner increase of interest rates or the reduction of bond-buying by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price rises indicates looser monetary policy. A higher-than-expected result tends to be GBP bullish.