GBP/USD Price Forecast: Testing resistance at 1.3400 as bullish pressure grows

The British Pound (GBP) extends gains against the US Dollar (USD) on Wednesday after some hesitation in the early European session, as the positive impact from the hot consumer inflation figures was offset by the increment in public borrowing. GBP/USD bulls are pushing against the resistance area at 1.3400 after rallying nearly 2% from last week’s lows. 

UK Consumer Price Index (CPI) figures released earlier in the day revealed that inflation accelerated beyond expectations in September, fuelled by high energy prices. These figures have cemented expectations that the Bank of England will finally hike interest rates at its November 4 meeting.

The Pound, however, hesitated immediately after the news release, as the UK’s Public Sector Net Borrowing figures, released at the same time, showed that government debt increased at the highest pace in more than five years in September, mainly due to debt interest. These figures might have stirred old concerns about the UK’s public finances as Chancellor John Healey prepares the budget, which is due to be released next week.  

Technical Analysis: Above 1.3400, the next target is 1.3480

GBP/USD trades at 1.3389, maintaining a constructive bullish tone after confirming above the previous two weeks' horizontal range earlier this week. The 4-hour Relative Strength Index (14), at 69.14, hovers just below overbought territory, while the Moving Average Convergence Divergence (MACD) histogram remains modestly positive, together suggesting that upside momentum is strong although increasingly stretched in the near term.

Above 1.3400, bulls will aim for the August 13 and September 3 lows in the 1.3470 area, which is also the 61.8% Fibonacci retracement of the August-October bearish cycle. Further up, the September 9 high, near 1.3670, would come next.

Immediate support is at the 1.3300 area, Monday and Tuesday's lows and the top of the previous two weeks' channel. A clear break of that level puts bears back in control and brings the year-to-date lows, around 1.3140, back into focus.