- Data showed that US consumer prices were unchanged in May.
- Experts believe that the decline in inflation could continue as major US retailers cut prices on goods.
- After the inflation report, the probability of a Fed rate cut in September rose from 54% to 70%.
The outlook for GBP/USD is slightly bearish as the price pulls back after rising to new highs in the previous session. The pullback comes as the dollar rebounds after a hawkish Federal Reserve policy meeting.
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The pound rallied on Wednesday after data showed US consumer prices were unchanged in May on cheaper petrol. This was a significant drop from the previous month when there was an increase of 0.3%. Meanwhile, economists had expected prices to rise 0.1% for the month.
Furthermore, core inflation has declined significantly, leading to increased bets for two Fed rate cuts this year. Experts believe this downward trend could continue as major US retailers cut prices on goods. This is also a sign that consumer demand and spending are weakening. Therefore, there is more pressure on the Fed to reduce borrowing costs. After the inflation report, the probability of a rate cut in September rose from 54% to 70%.
However, this outlook changed little after the FOMC policy meeting, where policymakers were more dovish than expected. Fed officials believe the economy remains strong. Therefore, they predict the first rate reduction in December.
Meanwhile, data from the UK on Wednesday showed UK economic growth stalled at the start of Q2 due to heavy rains. Markets are pricing in a 70% chance that the Bank of England will implement its first rate cut in September.
GBP/USD key events today
- USA core PPI m/m
- US PPI m/m
- US unemployment claims
GBP/USD technical outlook: Bulls make new high above 1.2800
On the technical side, the GBP/USD price temporarily broke the resistance level at 1.2800 before falling below. This indicates a sudden change in sentiment that allowed the bears to return to the market. However, the bullish bias remains strong, with price above the 30-SMA and RSI above 50.
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For some time, the price has been trading in a range with support at 1.2700 and resistance at 1.2800. However, since the consolidation came after a bullish trend, the chances are high that the bulls will retake the lead. Therefore, the price could retest the resistance at 1.2800. A break above would open the way to the psychological level of 1.2900.
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