- The UK economy grew in February, indicating a gradual exit from a shallow recession.
- After the US inflation report, investors changed their outlook for a Fed rate cut.
- Traders pushed back the timing of the BoE’s first rate cut to August.
The current narrative in the GBP/USD outlook paints a bleak picture. Despite hints of growth in the British economy for the second consecutive month, the pound is locked in a downward spiral against the resurgent dollar. Over the past few days, the dollar has strengthened after the CPI report confirmed fears that inflation has stalled.
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The UK economy grew in February, indicating a gradual exit from a shallow recession. However, investors largely ignored the report as they continued to digest recent US inflation data.
After the US inflation report, investors changed their outlook for a Fed rate cut. Before the report, there was an over 50% chance the Fed would cut rates by June. However, that has changed with expectations for the first cut now in September. Such a significant move sent yields and the dollar higher, putting pressure on the pound.
For months, the GBP/USD pair was ahead of most G10 currencies due to the hawkish Bank of England. However, the terrain has changed. Given recent data, the Fed is now in a worse position than the BoE.
Meanwhile, the Bank of England turned more dovish as UK inflation fell at a much faster rate than expected. Investors are now fixing their eyes on next week when the UK will release data on inflation and the labor market. Still, following the US inflation report, traders pushed back the timing of the BoE’s first rate cut from June to August. This is still ahead of the Fed, which is weighing on the GBP/USD price.
GBP/USD key events today
GBP/USD technical outlook: Channel breakout
On the technical side, the GBP/USD price has broken out of its bullish channel and is in a solid downtrend. The trend reversed when the price reached the key resistance level of 1.2700, where the bears took control with a bearish candle.
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Moreover, the price broke below the 30-SMA and the RSI below 50. The strong bearish momentum continued until the price broke below the channel support and support level at 1.2551. Bears are now targeting the support level of 1.2500, where the decline could stall for some time.
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