Is sterling a buy ahead of UK inflation data?

The GBP/USD price held steady on Wednesday morning ahead of the latest UK consumer price index (CPI) data. It rose to a high of 1.3283, which was the highest it has been since March 4, 2022. 

UK inflation data

The GBP/USD pair has been in a strong bullish trend in the past few days as investors continue reacting to the recent interest rate decisions by the Fed and the Bank of England (BOE).

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The Fed decided to implement its first interest rate hike since 2018 on Wednesday last week. At the time, it decided to increase interest rates by 0.25% and then end quantitative easing (QE).

In a statement on Monday, Jerome Powell insisted that the bank will continue with its tightening phase this year. The goal of these rate hikes will be to slow the surging inflation.

The BOE continued with its easing policy on Thursday. It did that by hiking interest rates by another 0.25% in which was the third straight rate hike since the pandemic started. 

The next key catalyst for the GBP/USD will be the upcoming consumer inflation data by the Office of the National Statistics (ONS). Analysts expect that the headline CPI rose to 5.9% in February this year. Excluding the volatile food and energy prices, analysts expect that inflation jumped from 4.4% to 5.0%.

If analysts are accurate, then it means that the country is experiencing its worst inflationary pressure in decades. Worse, the situation will likely keep getting worse in the near term because of the ongoing crisis in Ukraine.

As a result, the BOE is between a rock and a hard place. For one, an aggressive rate tightening process risks causing a major slowdown since it will reduce borrowing.

GBP/USD forecast

The two-hour chart shows that the GBP/USD pair has been in a strong bullish trend in the past few weeks. As a result, the pair has managed to move above the 38.2% Fibonacci retracement level. It has also risen above the key resistance point at 1.3198, which was the highest level this month. 

The pair has moved above the 25-day moving average while the Relative Strength Index (RSI) and MACD have moved higher. Therefore, the British pound will likely keep rising as bulls target the next key resistance level at 1.3350.

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