Home Forex Market Analysis GBP/USD Forecast Ahead of the US Inflation Data

GBP/USD Forecast Ahead of the US Inflation Data

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GBP/USD Forecast Ahead of the US Inflation Data

The GBP/USD pair is hovering near its highest level this year ahead of the UK full reopening. The pair is also waiting for the upcoming UK industrial and manufacturing and US inflation data. It is trading at 1.4115, which is about 1% below the highest level this year.

UK reopening trade

The British pound has become the second-best performing currency in the G7 after the Canadian dollar. The currency has jumped by more than 24% from the lowest level in 2020. It is also a few pips below the highest point since April 2018.

There are several factors that have contributed to this strong performance. In December, the UK and the European Union reached a Brexit deal, which helped to ensure that trade continued to flow between the two sides. The deal also helped to boost investor confidence. 

The UK has also done a good job in its vaccination progress. Recent data shows that more than 40 million people have received at least one dose of the vaccine. More than 27 million people have already been vaccinated, representing more than 40% of the population. 

The vaccination has helped the economy start its reopening process. Indeed, the government expects that the country will reopen fully later this month. 

Further, economic data from the UK have been relatively strong. Retail sales have risen while house prices have surged to the highest levels in years, according to Halifax and Nationwide. The services and manufacturing sectors have also continued firing on all cylinders. 

The GBP/USD will react to the latest industrial and manufacturing production data that will come out on Friday. Economists polled by Bloomberg expect the manufacturing production to rise by 1.5% in April while industrial production rose by 1.2%. The year-on-year increase will be in double digits because of last year’s lockdowns.

US inflation data

The GBP/USD has also risen because of the overall weakness of the US dollar. The dollar index has dropped by more than 12.5% from its highest level in 2020. It is hovering near the lowest level since April 2018. This performance is mostly because of the Federal Reserve that has left interest rates at a record low and launched its biggest balance sheet expansion plan on record.

On Thursday, the GBP/USD will be moved by the latest US inflation numbers. The data is expected to show that the headline CPI rose by 4.7% in May this year as commodity prices rose. The Colonial Pipeline hack helped push gasoline prices in some states higher. The core CPI is expected to have risen to 3.2%. These numbers are above the Fed’s target of 2.0%.

Therefore, if the numbers are stronger than estimates, there is a possibility that the GBP/USD will retreat because they will put more pressure on the Fed to move earlier than expected.

GBP/USD technical analysis

The daily chart shows that the GBP/USD has been in a consolidation phase over the past few days. The pair has struggled to move above the highest level in February. It also seems like it is forming the handle section of the cup and handle pattern. This pattern is usually a sign of a bullish continuation. It has also moved above the 25-day and 15-day moving averages. The pair is also being supported by the rising trendline.

Therefore, the GBP/USD pair will likely break out higher in the near term. Such a breakout will be confirmed when the price manages to move above the upper resistance at 1.4253. 

GBP/USD chart

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