- UK inflation fell below the BoE’s 2% target for the first time in nearly three years.
- Inflation in the prices of services in the UK increased by 5.7%, which is more significant than the forecast of 5.5%.
- US data on Tuesday showed weak retail sales in May.
The GBP/USD forecast shows an increase in bullish momentum after data from the UK showed that core inflation remained strong. Meanwhile, data from the previous session revealed a smaller-than-expected increase in US retail sales.
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Data on Wednesday showed that UK inflation fell short of the BoE’s 2% target for the first time in almost three years. However, underlying price pressures remain strong, with services price inflation rising 5.7%, which was more significant than the forecast of 5.5%. Consequently, the Bank of England may be reluctant to reduce borrowing costs.
While economists expect the BoE to start cutting rates in August, markets have cut the likelihood of such an outcome to 30% from 50% before the report. At the same time, they now expect a cut of 44 basis points this year, down from 50. A shift to a less dovish view helped push the pound higher on Wednesday.
Meanwhile, the dollar was on the back foot after US data on Tuesday showed weak retail sales in May. Economists expected a significant increase in sales for the month. The failure pointed to weaker consumer spending and demand.
As the American consumer cuts back on spending, the economy suffers and inflation declines. As a result, investors believe the Fed has more reading to reduce borrowing costs. For this reason, there is a 67% chance that the central bank will cut rates in September.
GBP/USD key events today
Investors will continue to digest inflation data as they await tomorrow’s Bank of England policy meeting.
GBP/USD Technical Forecast: Bounce meets strong SMA and Fib resistance
On the technical side, the GBP/USD price moved sharply from the key 1.2700 level to the 30-SMA resistance. However, the bias is yet to shift from bearish to bullish as the price is still testing the SMA resistance and the 0.382 Fib level. However, the bulls have gained momentum, as seen in the RSI, which has reached above 50.
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Therefore, they can break the SMA to retest the 1.2850 resistance level. However, there is a better chance that the SMA and Fib level will hold tight, allowing the bears to come back and target the 1.2600 level.
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