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Inflation data finally comes out, but the market begins to doubt its power? See how the pound can take advantage of the trend
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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Platform]: Inflation data www.xmtraders.comes to the finale, but the market is beginning to doubt its power? Let's see how the pound takes advantage of the momentum." Hope this helps you! The original content is as follows:
After experiencing a rebound on Monday, the pound against the US dollar continued to strengthen on Tuesday (January 13), trading around 1.3470 before the US market opened. The overall market sentiment is positive, but the trend is still subject to the suppression of key technical levels above. Judging from the graphic structure, the exchange rate is consolidating around the 1.3470 area at the 240-minute level. It had previously formed a stage low at 1.3390, and started a rebound from there.
During the recent rise, 1.3485 has initially appeared as a short-term pressure area, and the more critical resistance is located at the 1.3500 integer mark. If the price can effectively stand firm at 1.3500 and maintain the resistance, it is expected to further challenge the previous high of 1.3566 in the short term; otherwise, if it is repeatedly blocked at this position, it may return to a range-bound pattern.
Technical indicators show that current momentum is being restored. The DIFF value of MACD is 0.0002, DEA is -0.0005, and the column is 0.0013, indicating that although the bullish power has become stronger, it is still in its early stages. RSI(14) runs to 53.9143, which is in the neutral to strong zone, indicating that buyers have a slight advantage, but have not yet entered an overbought state. Judging from the K-line shape, this rebound is more like a technical repair wave initiated from the low of 1.3390. Whether the real trend opportunity is established depends on whether a large-volume breakthrough can be achieved in the range of 1.3485 to 1.3500. Otherwise, in the absence of strong fundamental support, the market is more likely to maintain the normal state of "cautious before data and sawing within the range."
U.S. inflation www.xmtraders.comes to an end, and interest rate expectations may no longer fluctuate wildly
MarketThe short-term focus is highly focused on the December US Consumer Price Index (CPI) to be released at 21:30 tonight. The data has historically had a direct impact on the dollar and interest rate expectations, but analysts note that the market appears to be less sensitive to a single inflation reading currently. The reason behind this is that the Fed's internal considerations about the policy path are undergoing subtle changes. Although some officials such as Atlanta Fed President Bostic still emphasize that "inflation is still too high" and must be resolutely controlled, more policymakers are beginning to pay attention to the drag on the economy from potential weakness in the labor market, rather than simply focusing on price levels.
At the December monetary policy meeting, the Federal Reserve lowered interest rates by 25 basis points to 3.50%-3.75%, a move that was seen as a precautionary hedging against employment risks. Powell made it clear after the meeting that the current economy is not overheating, service inflation has shown signs of falling, and www.xmtraders.commodity inflation is more affected by external factors such as tariffs. He also emphasized that "there are no long-term concerns about inflation." This policy tone means that even if the CPI data fluctuates slightly this time, the market may interpret it within the framework of "employment and inflation rebalancing", thereby limiting the possibility of the dollar fluctuating significantly due to a single data.
Specifically, the market expects that the U.S. core CPI will rise to 2.7% year-on-year in December (previous value was 2.6%), while the overall CPI will remain unchanged at 2.7% year-on-year; month-on-month, both overall and core CPI are expected to increase by 0.3%. If the actual results are close to expectations, the U.S. dollar's reaction may be muted, and exchange rate fluctuations are more driven by risk appetite or policy uncertainty; but if the data deviates significantly from expectations—especially if core CPI rises more than expected year-on-year or month-on-month—it may trigger a revaluation of interest rate expectations, which will then be quickly transmitted to the short-term direction of GBP/USD through the U.S. dollar index.
The undercurrent of the Fed's independence is surging, and the market is wary of the shaken credit foundation
In addition to the economic data itself, another disturbing clue that cannot be ignored this week is the escalation of the controversy surrounding the Fed's independence. It was reported on Monday that U.S. federal prosecutors have issued a subpoena to Federal Reserve Chairman Powell to investigate the content of his testimony at a Senate hearing in June 2025 and the use of funds for the renovation project of the Federal Reserve’s Washington headquarters. Although the incident is still in its preliminary stages, its symbolism is significant. Powell responded that such criminal charges may be intended to interfere with the central bank's independent position of "making policy based on the public interest" rather than for real law enforcement needs.
This development has triggered widespread concerns in the market. Central bank independence is regarded as one of the important cornerstones of maintaining the long-term credit of the U.S. dollar. Rating agencies have repeatedly pointed out that it is precisely because of the Federal Reserve's long-term operating model that is free from political interference that U.S. Treasury bonds maintain a high credit rating. Once this institutional trust is shaken, it may cause investors to demand higher risk premiums to hold U.S. dollar assets, thereby weakening the attractiveness of the U.S. dollar. Although there is currently no direct evidence that the policy has been intervened, the relevant news has sown hidden dangers at the emotional level, especially in the global capital market.During this liquidity-sensitive period, any speculation about "political intervention in monetary policy" may amplify volatility.
At the same time, US retail sales and producer price index (PPI) for December will also be announced this week. If these data www.xmtraders.combinations show strong demand or rising cost pressures, they may provide phased support for the US dollar; conversely, if the data are generally weak, it will further strengthen the narrative of "economic slowdown + policy easing", which will be beneficial to the continued rebound of non-US currencies, including the pound.
UK data is yet to be released. Can the pound get rid of the "passive rebound" label?
The direction of the pound itself is also gradually attracting attention from the country’s fundamentals. The UK's November monthly GDP and manufacturing output data to be released on Thursday will be a key litmus test to test whether its economic momentum has bottomed out. Current market expectations show that after the economy shrank by 0.1% in October, GDP is expected to be flat in November; manufacturing output is expected to grow steadily at 0.5% month-on-month, and industrial output is roughly flat. The core significance of this set of data is to verify two issues: first, whether economic growth has truly stabilized, and second, whether the improvement in manufacturing is sustainable.
If both data are better than expected, the pound is expected to receive more solid fundamental support, breaking away from the passive rebound logic of "only driven by the weakening of the US dollar" and turning to active strength; however, if the data is not as good as expected, the current rally may be redefined as a technical correction, and its sustainability will be greatly reduced.
The above content is all about "[XM Foreign Exchange Platform]: Inflation data is the finale, but the market is beginning to doubt its power? Let’s see how the pound takes advantage of the momentum." It is carefully www.xmtraders.compiled and edited by the editor of XM Foreign Exchange. I hope it will be helpful to your trading! Thanks for the support!
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