It has been a choppy affair for the GBPUSD.

Since late November 2022, prices have been trapped within a very wide range with support at 1.1850 and resistance at 1.2450.

There has been a combination of fundamental and technical forces empowering both bulls and bears. However, until there is a noticeable shift in power or major technical breakout, prices are likely to remain rangebound in the short term. It is worth keeping in mind that the Pound has weakened against every single G10 currency since the start of February thanks to a dovish Bank of England.

Interestingly, the dollar straightened up – boosted by January’s robust jobs figures which revived market expectations around the Fed raising interest rates over a longer period.

The combination of dollar strength and pound weakness has resulted in the GBPUSD shedding roughly 2% month-to-date. Nevertheless, it is clear that a fresh directional catalyst may be required to shift the balance of power in favour of bulls or bears.

Will GBPUSD get some love this week?

Keep an eye on a couple of key risk events that could inject the GBPUSD with fresh volatility this week.

The UK inflation release will be under the spotlight on Wednesday 15th February. Markets are forecasting CPI to cool 10.3% in January 2023 versus 10.5% in December 2022. Given how inflation is expected to have already peaked in the United Kingdom, a report that meets or prints below expectations may boost sentiment and fuel speculation around the BoE pausing on rate hikes down the road. Ultimately, is seen dragging the GBPUSD lower. Alternatively, a hotter-than-expected CPI report may force the central bank to re-adopt a hawkish stance – boosting Sterling in the process.

It’s all about the retail sales report on Friday which is expected to dip in January compared to December. A disappointing figure is likely to strengthen the argument around the BoE pausing hikes down the road.

Outside of the UK, investors will be paying very close attention to the US inflation report on Tuesday. Inflation is expected to have cooled further to 6.2% in January compared to the 6.5% witnessed in December. A report that meets or prints below market projections is likely to not only pour cold water on the renewed Fed hike bets but also weaken the dollar. A weaker dollar could trigger a bounce on the GBPUSD.

Breakout on the horizon?

On the daily timeframe, the GBPUSD remains wedged between the 50-day and 200-day SMA. Prices are choppy and almost directionless with minor support found around 1.1950. As identified earlier, the currency pair remains within a very wide range with a fresh fundamental spark needed to trigger a major breakout/down. In the meantime, sustained weakness below 1.2177 could open the doors towards 1.1960 and 1.1850, respectively. According to Bloomberg’s probability calculator, there is a 29% chance from current levels that the GBPUSD ends Q1 below 1.1850. Should prices experience a rebound from the 1.1950/1.1850 regions, the next key level of interest can be found back at 1.2450. Interestingly, there is a 40% chance from current levels that the GBPUSD touches 1.2450 by the end of Q1.