**GBP/USD Forecast Ahead of UK and US Inflation Data**
*By Crispus Nyaga, originally published at Invezz*
The GBP/USD pair has been trading in a relatively narrow range as investors brace for a series of pivotal economic data releases from both the United Kingdom and the United States this week. Sterling continues to be vulnerable to both domestic economic headwinds and global risk sentiment, while the dollar is contending with evolving bets on Federal Reserve policy. The outcome of the forthcoming US and UK inflation prints could play a decisive role in shaping the near-term trajectory of the pair.
## Recent Performance of GBP/USD
The GBP/USD currency pair has exhibited moderate volatility in recent sessions. Cable found some support above the psychological 1.2750 level before bouncing back towards 1.2800 in early trading this week. Markets are consolidating after the recent retreat from the 1.2900 highs witnessed at the end of June. The movement can be attributed to:
– **Uncertainty over future interest rate policy** from both the Federal Reserve and the Bank of England (BoE)
– **Shifting global risk appetite** and changes in US Treasury yields
– **Mixed economic signals** from both economies
### Technical Overview
From a technical perspective, GBP/USD is still trading above the 50-day and 200-day moving averages, suggesting that underlying sentiment remains constructive, although momentum has moderated recently.
– **Support levels:** 1.2750, 1.2700, 1.2650
– **Resistance levels:** 1.2830, 1.2900, 1.3000
The pair’s direction is set for a pivotal test around the 1.2750/1.2800 range—close attention is warranted for any breakout or breakdown from this zone in response to upcoming key economic releases.
## UK Economic Backdrop: Inflation and Rate Outlook
The fate of the British pound remains closely tied to the UK’s inflation problem and the BoE’s policy reaction. After last year’s double-digit inflation peaks, consumer price pressures have started to ease but remain above the BoE’s 2% target.
### Key UK Data This Week
– **UK Consumer Price Index (CPI):** Set to be released on Wednesday, this data will show how much price pressures have cooled or persisted.
– **Expectations:** Markets anticipate a further moderation in headline inflation, but any surprises to the upside could reignite speculation that the Bank of England will keep rates higher for longer.
– **Wage growth:** Remains substantial, contributing to so-called “sticky” inflation, particularly in the services sector.
### Bank of England’s Dilemma
The BoE has signalled that while inflationary pressures are receding, risks remain. With core inflation and wage growth proving persistent, the bank has hesitated to cut interest rates even as economic activity slows.
– **Current UK policy rate:** 5.25%, the highest since 2008
– **Market expectations:** At least one rate cut is priced in for later in 2024, but timing depends on how quickly inflation returns to target
– **Political backdrop:** The recent General Election resulted in a Labour government, though little is expected to change regarding monetary policy in the short term
If upcoming inflation data is hotter than expected, markets may push back expectations for a rate cut, offering support to GBP. Conversely, lower-than-anticipated readings could reinforce bets that the BoE will soon pivot to easing, potentially pressuring the pound lower.
## US Economic Landscape: Cooling Inflation and Fed Policy
Across the Atlantic, the Federal Reserve faces its own delicate balancing act. After a series of aggressive rate hikes to tackle inflation, consumer price pressures have started to moderate. However, the progress has been bumpy, and the recent data has painted a mixed picture.
### Inflation Data in Focus
– **US CPI Release (Thursday):** Arguably the most important data
Read more on GBP/USD trading.