- The dollar strengthened amid falling expectations of a rate cut.
- Markets now predict just two Fed rate cuts this year.
- Next week, investors will focus on retail sales data from the US and the UK.
The GBP/USD weekly forecast is headed south, with the Fed expected to remain tight-lipped before making any moves to cut interest rates.
GBP/USD Ups and Downs
The GBP/USD pair had a bearish week as the dollar strengthened amid falling rate cut expectations. The main event this week was the US inflation report. When it came out, investors were surprised by another month of higher-than-expected price growth. Moreover, it followed a hit jobs report showing a strong labor market.
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Accordingly, there was a sharp adjustment in Fed rate cut expectations. Markets are now predicting just two rate cuts this year, starting in September. US inflation has proven to be more stubborn than other major economies. This put the dollar in a better position than the pound.
Next week’s key events for GBP/USD
Next week, investors will focus on retail sales data from the US and the UK. Furthermore, the UK will release data on employment and inflation. All focus will be on the UK CPI report, which will show the state of price growth in the economy. The recent US inflation report has put the GBP/USD pair in a weak position as the timing of the first Fed tapering has been pushed back to September.
Therefore, traders will wait to see if the Bank of England will be in a position to cut interest rates before the Fed. A fall in UK inflation would further weaken the GBP/USD pair.
GBP/USD Weekly Technical Forecast: Price signals impending rectangle breakout
On the technical side, the GBP/USD price is on the verge of breaking out of its rectangle. Moreover, the bias is bearish as the price falls well below the 22-SMA and the RSI approaches the oversold region.
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The previous bullish trend stalled when the price reached the key resistance level of 1.2801. It then consolidated with the 1.2801 level as resistance and the 1.2500 level as support. There was an increase in momentum that pushed the price to the 0.5 Fib level.
If the price closes below the rectangle support, it is likely to fall to the 0.618 Fib level. Moreover, the path will be clear for the price to reach the support level of 1.2201.
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