GBP/USD analysis: forecast ahead of UK inflation data

The GBP/USD exchange rate continued its strong bull run after the relatively dovish Federal Reserve statement and ahead of the upcoming UK inflation data. It has risen for three straight days and has moved to the psychological point at 1.300, its highest swing since July 2023.

Dovish Federal Reserve

The GBP/USD pair continued its strong surge after Monday’s statement by Jerome Powell, the Federal Reserve Governor. 

In a statement, Powell welcomed the last three month’s inflation numbers that showed that prices were stabilizing. Last week’s consumer price index (CPI) data showed that the headline and core inflation numbers dropped to 3.0% and 3.2% in June, respectively.

Powell is comfortable cutting interest rates this year if inflation continues falling even though it remains above the 2.0%. The Fed now seems more concerned about the labour market, which has softened in the past few months.

Recent economic data revealed that the economy created over 200k jobs in June, higher than the expected 186k. However, the unemployment rate continued rising, reaching 4.1%, its highest point since 2021.

Therefore, analysts expect the Federal Reserve will start to cut interest rates as soon as in its September meeting. The bank will provide more information about this in its upcoming meeting scheduled for July 30th and the Jackson Hole Symposium.

The Fed is also concerned that other parts of the economy are slowing. Data by the ISM showed that the manufacturing and non-manufacturing PMIs dropped to the contraction zone in June. 

Looking ahead, the GBP/USD pair will react to the upcoming US retail sales data. Economists expect the numbers to show that the headline retail sales dropped by 0.1% in June.

Just recently, companies like PepsiCo, General Mills, and Conagra Brands have published weak financial results. Weak consumer spending will likely accelerate the Fed’s decision to start cutting interest rates.

UK inflation data ahead

The GBP to USD exchange rate has also soared ahead of the upcoming UK inflation and retail sales data scheduled for Wednesday and Friday. Economists polled by Reuters expect the data to show that the country’s inflation eased slightly in June.

The headline Consumer Price Index is expected to come in at 1.9%, down from 2.0% in the previous month. Excluding the volatile food and energy prices, inflation is expected to drop 3.5%.

In a recent statement, Huw Pill, the bank’s chief economist, said that the country’s inflation was still stubbornly high. He also warned that the bank would likely delay its rate cut decision.

This case was strengthened after the UK posted strong May GDP data last week. According to the Office of National Statistics (ONS), the economy expanded by 0.4% in May, higher than the previous 0.0%.

Still, most analysts believe that the BoE will start cutting rates in its upcoming meeting on August 1st.

GBP/USD technical analysis

GBPUSD chart by TradingView

The daily chart shows that the GBP/USD pair has been in a strong bullish trend in the past few weeks. It recently flipped the crucial resistance point at 1.2830, the neckline of the inverse head and shoulders pattern. 

It has also soared above the 78.6% Fibonacci Retracement point at 1.2905. The pair has also moved above the upper side of the XABCD pattern, which is a bullish sign. It remains above the 50-day and 100-day moving averages.

The Relative Strength Index (RSI) has moved to the overbought point. Therefore, the pair will likely retreat and retest the support at 1.2893 and then resume the bullish trend. If this happens, it will ultimately retest the resistance level at 1.3100.

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