- UK sales fell 2.3% in May, beating economists’ expectations for a 0.4% drop.
- The probability of a rate cut by the Bank of England in June is 10%.
- Investors are eagerly awaiting the report on the core US PCE index.
The GBP/USD outlook shows renewed bullish momentum as the pound trades near a two-month high on falling expectations of a BoE rate cut. Meanwhile, investors are bracing for more inflation data from the US.
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Data from the UK on Friday showed a mixed picture of the economy, with sales falling and consumer confidence high. UK sales fell 2.3% in May, beating economists’ expectations for a 0.4% drop. This pointed to weaker demand in the economy which would pave the way for a rate cut in the UK.
However, since Wednesday’s inflation report, investors have significantly scaled back expectations for a rate cut. Namely, although inflation fell to 2.3% from 3.2%, economists expected a more significant drop to 2.1%. As a result, by Friday, the probability of a June rate cut by the Bank of England was 10%, down from 50% before the report. Some experts believe that markets have overreacted to the inflation miss.
Meanwhile, in the US, investors await the report on the core PCE index, which will show the state of core inflation. Policymakers have remained cautious since the latest inflation report, waiting for more evidence that prices are cooling. If the PCE report reveals easing inflation, it could give policymakers more confidence, allowing them to shift to a more dovish stance. On the other hand, a higher-than-expected figure will raise doubts about a rate cut and strengthen the dollar.
GBP/USD key events today
Investors today do not expect high-impact events. Therefore, the price is likely to consolidate.
GBP/USD technical outlook: Price retests solid resistance at 1.2750
On the technical side, GBP/USD has returned to trade near its recent highs after breaking the 30-SMA support line. However, the bullish move faces solid resistance from the 1.618 Fib and 1.2750 levels. Moreover, although the bias is bullish, some cracks show a possible reversal.
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First, the bears became strong enough to break below the 30-SMA, a sign that the bulls are losing control. This came after price sparked a bearish candle. Furthermore, the RSI is still showing a bearish divergence, indicating weaker bullish momentum. Therefore, if resistance remains firm, the trend could reverse to retest support at 1.2601.
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