GBP/USD choppy, directionless in low 1.3500s despite better risk appetite, strong UK wage growth figures

• GBP/USD has been choppy on Tuesday, swinging around the lower 1.3500s, with GBP subdued despite better risk appetite.
• Cable looks to have formed a descending triangle in recent weeks, implying a potential downside breakout towards recent sub-1.3400 lows.

GBP/USD has seen choppy, two-way trading conditions on Tuesday, swinging between session highs in the 1.3560s and sub-1.3500 session lows as the pair, for the most part, stuck to recent intra-day ranges. Despite a decent rebound in global equity markets on signs of easing Russia/Ukraine tensions and despite hotter than expected December UK wage growth figures which economists said bolsters the case for BoE tightening, GBP has been lackluster. At current levels near 1.3525, GBP/USD trades flat on the day.

Cable looks to have formed a descending triangle in recent weeks and the pair seemingly did not have enough conviction to mount a meaningful bullish breakout. Bearish technicians thus pay hope that GBP/USD breaks below support in the 1.3500 area and press lower towards last month’s sub-1.3400 lows. While easing geopolitical tensions may have knocked the US dollar in the short-term amid a weakened safe-haven bid, Producer Price Inflation figures on Tuesday came in hotter than expected, strengthening the argument of hawkish Fed policymakers like James Bullard.

Bullard has called for 100bps of tightening by July 1, meaning he likely supports a 50bps move in March. Other Fed policymakers have pushed back against this idea and said they would prefer a more measured policy shift. But markets seem to think the hawks will win this debate, with CME’s Fed Watch tool suggesting a roughly 60% chance of a 50bps hike in March versus just 25% one week ago (prior to the hot January Consumer Price Inflation report).

Looking ahead to the rest of the week, geopolitics will of course remain key to watch, but there is also plenty of US/UK data for GBP/USD traders to sink their teeth into. UK January CPI and US January Retail Sales figures and the Fed minutes of the last meeting are out on Wednesday. Thursday and Friday are then packed with Fed speak, while UK January Retail Sales figures are out on Friday.