You are currently viewing GBP/USD Outlook: Pound Gains as UK Awaits Key Inflation Data

GBP/USD Outlook: Pound Gains as UK Awaits Key Inflation Data

  • Weak US data helped the pound gain 2% this month.
  • Economists expect a sharp drop in inflation in Great Britain, from 3.2% in March to 2.1% in April.
  • Markets expect two BoE cuts starting in August.

The GBP/USD outlook shows a bullish bias as the pound strengthens ahead of UK inflation data. Conversely, the dollar remained weak after a string of poor economic data raised expectations for a Fed rate cut in the previous week.

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Weak US data this month on employment, inflation and retail sales helped the pound gain 2% against the dollar. The reports also revealed an economic deterioration that could pressure the Federal Reserve to reduce borrowing costs. Consequently, there is a higher chance that the Fed will cut rates twice this year. However, policymakers do not seem convinced that this will last. As a result, they maintained a somewhat hawkish tone, noting that inflation remained high.

Investors are eagerly awaiting the UK inflation report, which will guide Bank of England policy. Economists expect a sharp drop in inflation from 3.2% in March to 2.1% in April, which will bring it closer to the central bank’s target.

Currently, markets expect two BoE cuts starting in August. At the same time, there is a 55 percent chance that the central bank will start cutting rates in June. The BoE governor and deputy said a rate cut could come in the summer. Therefore, the pound could reverse due to differences in political outlook between the UK and the US.

GBP/USD key events today

GBP/USD technical outlook: Bulls fading near Fib resistance

GBP/USD technical outlookGBP/USD technical outlook
GBP/USD 4-hour chart

On the technical side, the GBP/USD price is in a bullish trend, with the price above the 30-SMA and the RSI in bullish territory. The bullish movement is heading towards the 1.2750 level, which coincides with the Fib extension level at 1.618. However, the bullish move may not break this resistance as there are signs that the momentum is fading.

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Notably, while the price is higher, the RSI made a lower high, indicating a bearish divergence. Therefore, the bulls are exhausted and may give up control at the nearest resistance. In that case, the price would likely make a deep pullback to retest the key 1.2601 level.

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