Resistance at 1.267: Key Level to Watch After BoE Rate Decision

The UK continues to struggle with high inflation, as demonstrated once again this morning when headline inflation exceeded expectations at 8.7%, surpassing the projected 8.4%. Core inflation also outperformed, registering a 7.1% figure compared to the expected 6.8%. This divergence emphasizes the contrast between the UK and its counterparts in the US and Europe.

Tomorrow, the Bank of England is set to announce its interest rate decision, and there are expectations of further tightening from the central bank. Given the elevated level of inflation, the bank may have little choice but to maintain a hawkish stance.

Last week, the GBPUSD initially tested the support level at the previous resistance of 1.250. However, that brief decline was followed by four consecutive days of significant gains, ultimately reaching a new high for the year.

There was a temporary resistance encountered at a critical level of 1.267. Following tomorrow's rate decision, this level could potentially act as a support area, particularly considering the slight pullback observed in recent days and the elevated RSI (Relative Strength Index).

On the other side of the trade, we have Federal Reserve Chair Jerome Powell's comments on the central bank's ongoing battle against inflation falling short of the market's more hawkish expectations.

During his testimony to lawmakers, Powell acknowledged that inflation remains significantly above the Fed's target and indicated that raising rates could still be a sensible course of action, albeit at a more moderate pace. Traders particularly took note of the term "moderate," which Powell used to qualify the potential rate increases. We still have one more day of testimony from Powell.