GBP/USD pulls back after hitting a wall of resistance at 1.2400 and falls to 1.2375

• GBP/USD will end Friday down at least 0.20%.
• Inflation in the United States continues to decline, but remains twice the Fed’s target.
• GBP/USD Price Analysis: Will remain sideways pending Fed and BoE policy decisions.

The GBP/USD It breaks two days of gains and falls below Thursday’s close at 1.2406, slumping towards 1.2370, amid choppy trading session. The released US inflation data increased the probability of small rate hikes by the US Federal Reserve. Therefore, GBP/USD is trading at 1.2372, below its price opening by 0.27%.

The US core CPI pushes downwards and justifies the Fed’s lower rate hikes

US stocks mixed at press time. The inflation indicator of choice for the US Federal Reserve (Fed), Core Personal Consumption Expenditure (PCE) for December, rose 4.4% year-on-year, down from 4.7% in November, reinforcing the idea that the Fed to reduce the volume of interest rate hikes for the rest of the year. Headline inflation rose 5% year-on-year, well above the Fed’s 2% target.

Although the data showed that inflation is cooling, the fourth quarter US GDP released on Thursday could exacerbate officials’ intention to slow the pace of rate hikes.

Meanwhile, the University of Michigan (UM) Consumer Sentiment in its final reading for January rose to 64.9, above expectations of 64.6. The survey carried out by the University of Michigan updated inflation expectations, with a one-year horizon estimated at 3.9%, while for a 5-year horizon it rose to 2.9% compared to a preliminary 3.0%,

Across the pond, the British calendar showed that economic activity fell in January at its fastest pace in two years, a survey reported on Tuesday. Meanwhile, the Bank of England (BoE) is expected to raise rates by 50 basis points on February 2, raising the Bank Rate to 4%. Although this would support the British pound (GBP), speculation is growing that it could probably be the last hike in the BoE’s tightening cycle.

GBP/USD Technical Analysis

After GBP/USD failed to break above/below the weekly range, price action would remain sideways, awaiting central bank decisions next week. Therefore, the GBP/USD trading range for the next Monday-Wednesday ahead of the Fed meeting would likely be 1.2340/1.2430. Oscillators suggest buying pressure is cooling, with the Relative Strength Index (RSI) ) pointing lower, although in bearish territory. The Rate of Change (RoC) shows almost unchanged levels of volatility.

If GBP/USD breaks above 1.2430, it could pave the way towards 1.2500, but the bulls need to break above 1.2450 first. On the other hand, a drop in GBP/USD below 1.2340 could bring the 1.2300 level into play. If it breaks below, the pair could test the 20-day EMA at 1.2267.