GBP/USD encounters mild losses as the Dollar finds stability amid market risk aversion

• The GBP/USD currently trades near the 1.2700 level, seeing losses hovering around 0.26%.
• The US dollar showed a recovery from its previous slump experienced on Monday.
• Markets recalibrated Fed expectations following mixed data last week, with heightened investor focus on the upcoming CPI report.

In Tuesday's trading, the GBP/USD pair suffered a setback, trading at 1.2705 amidst a stabilizing US Dollar and an increasingly risk-averse market mood. No relevant reports were released during the session, and markets eagerly await Consumer Price Index (CPI) data figures from the last month of 2023 from the US on Thursday.

In the last sessions, the pair edged upwards, mainly driven by monetary policy divergences. The Bank of England (BoE) has maintained its stance on further rate hikes, even as inflation and wage growth appear to be easing, while the US Federal Reserve (Fed) is expected to start its easing cycle as soon as March. In addition, markets are expecting five rate cuts this year but it will all come down to the incoming data, as economic figures will be the determinants of the easing calendar.

On Thursday, the US will reveal December's Consumer Price Index, projected to rise slightly to 3.2% YoY from November's 3.1%. However, the core yearly reading is predicted at 3.8%, showing a slight decline from the previous 4% in November, which may provide arguments to the Fed to start its easing cycle soon. If the CPI comes in lower than expected, the pair may resume its upward path.

GBP/USD levels to watch

The daily chart suggests that the pair has a distinctly bullish undertone. The Relative Strength Index (RSI) is currently established in positive territory but appears to be flat, suggesting a momentary equilibrium in buying and selling activity. This halt in the bullish momentum aligns with the Moving Average Convergence Divergence (MACD) currently printing flat red bars, implying that sellers are exerting influence, yet without a more decisive push.

However, despite short-term bearish indications, assessing the larger framework shows that the bulls maintain control. The pair is comfortably positioned above the 20, 100, and 200-day Simple Moving Averages (SMAs), a strong bullish hint at the larger time scale. Any pullbacks may be viewed as buying opportunities in this bullish backdrop until significant bearish changes occur in trend dynamics.

GBP/USD daily chart