After a surprising increase in UK inflation, which surprised the markets, the GBP/USD forecast turned bullish. This was due to the expectations of a closing rate reduction by the Bank of England. The reading in April’s CPI was 3.5%, which was considerably higher than March’s 2.6% and more than the 3.3% predicted. Due to this surprising uptick, the pound increased, and the GBP/USD level pierced through significant resistance. At the same time, economic uncertainty and dovish rhetoric from US Fed officials continued to weigh on the dollar. Analysts expect that the GBP/USD will continue to be underpinned by divergence in central bank views.
UK Inflation Spike Reshapes Market Expectations Quickly
The market reacted quickly to the unexpected inflation data, with traders rapidly reevaluating their expectations for a rate cut by the BoE. Compared to previous estimates, only 35 basis points of easing are currently priced in for the rest of the year. As traders awaited additional economic indicators, sterling eventually stabilized after initially rising on the news. Due to the UK’s more hawkish stance, the GBP/USD forecast is still bullish.
Fed’s Caution Helps GBP/USD Forecast Rally
Recent US data indicates that consumer inflation has been slowing, which has sparked speculation about potential rate cuts. Governor Alberto Musalem of the Fed reaffirmed this view. He suggested that the US labor market might keep getting worse even after trade tensions with China have decreased.
Markets now predict a 67% chance of a rate cut in September as a result of these developments. This outlook caused the dollar to weaken while the pound strengthened. Additionally, the GBP/USD forecast became more optimistic as a result of this shift in central bank positioning.
GBP/USD Breaks Resistance in Bullish Technical Move
Technically speaking, the GBP/USD forecast indicates strong bullish momentum. Additionally, following weeks of range-bound movement, the pair broke above the long-standing resistance at 1.3251. The price remaining above the 50-period simple moving average and the RSI remaining above 50 further support the successful breakout. This level indicates significant purchasing pressure.
Additionally, UOB analysts Peter Chia and Quek Ser Leang suggest being cautious. They caution that a significant obstacle to additional gains may be the 1.3445 level. A sustained upward trend could be confirmed by a successful retest of the 1.3401 level.
Traders Watch Central Banks for Next Big Move
Traders will concentrate on central bank signals and inflation trends, as there are no significant economic data releases from the US or the UK planned. The GBP/USD forecast will now depend on whether UK inflation persists and whether the Fed keeps its dovish stance. Additionally, the different policy paths of the Fed and the BoE could keep the pound strong relative to the dollar.
If the UK inflation trend persists and US data continues to deteriorate, the GBP/USD rate might rise above 1.3445. A change in the longer-term trend would be indicated by such a move. Due to its role as a crucial resistance, traders are also closely monitoring this level. Further gains in the pound could be strongly stimulated by a confirmed breakout.
Pound Finds Edge as Dollar Stalls
The GBP/USD forecast remains bullish in the wake of UK inflation, which weakens the case for rate cuts by the Bank of England. Meanwhile, the Federal Reserve is signaling a more accommodative policy. The pound has more upside potential, supported by both technical and fundamental factors.
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