It is a busy day ahead for the GBP/USD. Early in the session, wholesale inflation figures for December will be in the spotlight. Softer inflationary pressure would ease pressure on the Bank of England to maintain a hawkish policy stance to bring inflation to target.
On Tuesday, the UK Composite PMI survey highlighted a further decline in cost pressures, which eased back to their lowest since April 2021. However, firms cited wage pressures as the key driver behind rising business expenses, which may leave the BoE hawkish near term.
Average prices charged increased sharply in January, with firms attempting to pass on the upward trend in staffing costs. With wage growth being the key contributor, a pickup in wholesale inflationary pressures will keep pressure on the BoE.
Economists forecast the Producer Price Index Input component to soften from an annual rate of 19.2% to 18.0% while expecting the Output component to pick up from 14.8% to 16.4%. An unexpected rise in the input component would draw more interest.
Hotter numbers would force the BoE to take a more assertive steps to bring inflation under control. However, a more aggressive interest rate trajectory would also have a more adverse affect on the UK economy.
While inflation is back in the spotlight, no Monetary Policy Committee Members are speaking today, leaving investors to monitor chatter with the media.
GBP/USD Price Action
At the time of writing, the Pound was down 0.07% to $1.23259. A mixed start to the day saw the GBP/USD rise to an early high of $1.23367 before falling to a low of $1.23110.
The Pound needs to move through the $1.2337 pivot to target the First Major Resistance Level (R1) at $1.2411 and the Tuesday high of $1.24134. A return to $1.24 would signal an extended breakout session.
In the event of an extended rally, the GBP to USD would likely test the Second Major Resistance Level (R2) at $1.2487. The Third Major Resistance Level sits at $1.2638.
Failure to move through the pivot would leave the First Major Support Level (S1) at $1.2260 in play. However, barring a data-fueled sell-off, the GBP/USD should avoid sub-$1.2200 and the second Major Support Level (S2) at $1.2187.
The Third Major Support Level (S3) sits at $1.2036.
Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The GBP/USD sits above the 50-day EMA, currently at $1.23034. The 50-day EMA pulled further away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.
A hold above the 50-day EMA ($1.23034) would support a breakout from R1 ($1.2411) to target R2 ($1.2487) and $1.25. However, a fall through the 50-day EMA ($1.23034) would bring S1 $1.2260 and the 100-day EMA ($1.22390) into view. A fall through the 50-day EMA would send a bearish signal.
The US Session
It is a quiet day ahead on the US economic calendar. There are no US economic indicators for investors to consider, leaving corporate earnings to influence market risk sentiment.
Boeing (BA), IBM (IBM), and Tesla (TSLA) are among the big names releasing earnings results today.
However, there are also FOMC members speaking today to influence, with the Fed having entered the blackout period on Saturday.
Read More: PPI Input Numbers to Test Buyers at $1.2300