- Inflation in the UK remained at an annual rate of 2% in June.
- Services inflation in the UK reached 5.7%.
- US sales were unchanged in June, better than economists’ expectations for a 0.3% decline.
GBP/USD price analysis shows solid bullish sentiment as the pound rises following a higher-than-expected UK inflation reading. Meanwhile, the dollar retreated from Tuesday’s highs as the effects of an upbeat retail sales report wore off.
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Inflation in the UK remained at an annual rate of 2% in June, higher than the expected increase of 1.9%. At the same time, services inflation amounted to 5.7%, which is higher than the forecast of 5.6%. These upbeat numbers could lead Bank of England policymakers to be more cautious. Furthermore, the figures reduced the likelihood of a rate cut in August, boosting the pound.Meanwhile, the US dollar fell after recovering on upbeat retail sales data in the previous session. Sales remained unchanged in June, better than economists’ expectations for a 0.3% decline. The report indicated that the economy was doing quite well, and that the risks of a recession were low.
However, inflation is also on a downward trend, which means the Fed is closing in on its first rate cut. Soft inflation data last week had investors fully pricing in the first rate cut until September, putting significant pressure on the dollar. As long as inflation continues to fall, policymakers will be confident enough to cut rates even if the economy remains resilient. However, if inflation stagnates or rises while the economy is strong, the Fed will delay rate cuts.
GBP/USD key events today
Neither the US nor the UK will release any more key reports today. Therefore, investors will continue to digest the UK inflation data.
GBP/USD technical price analysis: Bulls break the 1.3000 barrier
On the technical side, the GBP/USD price is breaking above the 1.3000 barrier with a solid bullish candle. However, it must close well above this level to confirm this breakout. It is noticeable that the price achieved consistently higher highs and lows, which indicates a bullish trend. At the same time, it respected the 30-SMA as support, trading above the line.
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However, the RSI tells a different story. The indicator made a bearish divergence with the price, which could indicate a weakening of the bullish momentum. If the bulls are exhausted, they may not be able to sustain a move above 1.3000 and pull back.
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