The British pound has plunged in the past few days as the recent bullish momentum faded. The GBP/USD exchange rate dropped to a low of 1.3490, its lowest level since June 23. It has plunged by over 2.17% from its highest point this year.
US Dollar Index rises
The GBP/USD exchange rate has plunged in the past few days as the US Dollar Index (DXY) bounced back. Data shows that the DXY Index rose to $97.86 on Friday, up sharply from the year-to-date low of $96.35.
The dollar index’s surge has coincided with the rebound of the US bond yields. Data shows that the ten-year yield jumped to 4.417%, its highest level since June 20, and much higher than this month’s low of 4.20%.
The rally happened after the US published strong jobs numbers earlier this month. These numbers showed that the economy created over 147k jobs in June, higher than 144k in the previous month.
Most notably, the data showed that the unemployment rate dropped to 4.1% from 4.3% previously. Following these reports, the odds that the Federal Reserve would slash interest rates this month plunged sharply.
The next key catalyst for the GBP/USD exchange rate will be the upcoming Consumer Price Index (CPI) data on Wednesday. Economists expect the data to show that inflation rose modestly in June.
They expect the report to show that prices of goods and services, excluding food and energy, rose 0.3% in June, the biggest jump in five months. Analysts also expect the data to show that the core CPI jumped to 2.9% in June.
A strong inflation report will lower the chances of the Federal Reserve slashing interest rates in September, as many analysts anticipate.
The US will publish the latest retail sales data on Thursday. Economists expect the data to reveal that retail sales rose modestly during the month. This is an important metric that will provide more color on the second quarter economic growth.
UK inflation data
The next important catalyst for the GBP/USD exchange rate will be the upcoming UK inflation data. Economists expect the report to show that the headline consumer price index (CPI) remained unchanged at 3.4%.
The core consumer inflation report, which excludes the volatile food and energy prices, is also expected to have remained unchanged at 3.5% during the month.
The UK will also publish the latest retail sales data, which will also provide more information about the economy.
Analysts expect that the BoE may hold interest rates steady in the upcoming meeting if inflation continues rising.
GBP/USD technical analysis
The daily chart shows that the sterling pound has been in a strong bull run in the past few months, surging from a low of 1.2100 in January to a high of 1.3785 earlier this year.
Most recently, the pair has formed an ascending channel and is now approaching its lower side. The pair has remained above the crucial support level at 1.3428, the upper side of the cup-and-handle pattern.
Sterling remains above the 50-day and 100-day Exponential Moving Averages (EMA). Therefore, the GBP/USD pair will likely drop and retest the upper side of the cup and then resume the uptrend.
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