UK inflation data for February is set for release, with markets broadly anticipating that price pressures will remain resilient. As a core reference indicator for the Bank of England's policy decisions, the Consumer Price Index (CPI) data will directly influence interest rate path expectations and significantly impact the British pound's trajectory. Market forecasts suggest that the UK's headline inflation rate for February is expected to hold steady at 3.0% year-on-year, with a month-on-month increase to 0.4%. Core inflation is projected to rise slightly to 3.1% year-on-year, indicating that underlying inflation remains sticky. Although factors like energy subsidies have caused short-term data fluctuations, overall price pressures have not eased significantly. Particularly against the backdrop of rising energy prices, there is a risk of inflation re-accelerating.
The Bank of England held its interest rate steady at 3.75% in its previous meeting, but the policy stance was notably hawkish. The unanimous vote by the Monetary Policy Committee to maintain the rate reflects a high level of concern regarding inflation risks. Governor Andrew Bailey noted that rising energy prices are being passed through to end consumers and could elevate household spending levels. Energy prices are currently a key driver of inflation and also increase the risk of "secondary inflation effects." Regarding policy expectations, markets are currently pricing in over 67 basis points of additional rate hikes within the year, with a widespread bet that the Bank of England will implement a 25-basis-point increase at its April meeting. The escalating expectations for further rate hikes serve as a significant driver supporting the pound's rebound.
Concurrently, the US dollar's trajectory remains uncertain. On one hand, elevated US interest rates provide support for the dollar. On the other hand, if inflationary pressures persist, expectations for Federal Reserve rate cuts could be further delayed. The dollar is oscillating between "interest rate support" and "fluctuations in risk sentiment," making it difficult for the GBP/USD pair to establish a clear unilateral trend.
From a market structure perspective, GBP/USD has moved out of its previous weak range near 1.3200 and rebounded to around 1.3400. The pair's transition from a "downtrend" to a "consolidation and correction phase" indicates a moderation of the previously bearish market sentiment towards the pound. Technical analysis on the daily chart shows that GBP/USD found a tentative bottom around 1.3200 before initiating a rebound and is currently trading within the 1.33-1.35 range. The moving average system is gradually flattening, signaling a shift from a downtrend to a consolidation phase. The area around 1.3500 constitutes a key resistance level; a break above it could open the door for further upward movement. Conversely, the 1.3300 level provides significant support, corresponding to the lower boundary of the current range. Examining the 4-hour chart structure, the short-term trend exhibits characteristics of a consolidative uptrend, with gradually higher lows. However, upward momentum is constrained, as highs have failed to achieve sustained breakouts, resulting in a range-bound pattern. The area around 1.3350 forms near-term support, while the 1.3480-1.3500 zone acts as a clear resistance area. A decisive breakout from this range could trigger a new directional move.
UK inflation data remains the core variable for the market. Its outcome will directly influence the Bank of England's policy path and the pound's performance. Against the backdrop of stubborn inflation, rate hike expectations provide support for sterling. However, the dollar's interest rate advantage and economic uncertainties continue to cap its upside potential. In the short term, GBP/USD has entered a phase of consolidation and correction. Its medium-term direction will depend on further developments regarding inflation and policy expectations.