- The UK economy grew faster than expected in May.
- The BoE’s Swati Dhingra urged the central bank to start reducing borrowing costs.
- The probability of a Fed rate cut in September rose from 73% to 94%.
The GBP/USD outlook is leaning bullish as the pound extends last week’s gains following positive UK data. Meanwhile, the dollar remained weak after a US inflation report showed the first decline in four years.
Data on Thursday last week showed that the UK economy grew faster than expected in May. As a result, there was less confidence in the Bank of England’s August rate cut. This raised the pound higher. However, rate-setter Swati Dhingra on Monday urged the central bank to start reducing borrowing costs. According to her, high interest rates have reduced demand in the economy, so there is little risk of a burst of inflation.
However, the markets hardly reacted because she is a famous dove. Significantly, Swati voted for a rate cut in the UK from February. There is currently a 50% chance that the BoE will cut rates in August.
Meanwhile, the dollar had a brief recovery on Monday as investors digested news of the assassination attempt on Trump. The incident increased Trump’s chances of winning the November election. A Trump victory is bullish for the dollar as Treasuries could rise, fueling demand for the US currency.
However, that move was soon reversed as the market focused on the prospect of a Fed rate cut. Thursday’s data showed that monthly inflation fell by 0.1 percent. This was an unexpected drop and a major turning point for the US central bank. The softer numbers saw the likelihood of a rate cut in September increase from 73% to 94%.
GBP/USD key events today
- Empire State Manufacturing Index
- Fed President Powell is speaking
GBP/USD Technical Outlook: RSI indicates slight weakness at new high
On the technical side, the GBP/USD price is approaching the key psychological level of 1.3000, which could be a strong barrier. The bullish bias is strong, with price well above the 30-SMA support. At the same time, the RSI is supporting a solid bullish momentum in the overbought region.
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However, the RSI also shows a slight easing of bullish momentum from the previous high. Bearish divergence shows exhaustion. If the bulls are not strong enough to break the resistance at 1.3000, the price could pull back to retest the support at 1.2900 or 30-SMA.
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