GBP/USD falls slightly during the North American session, falling below the 50-day Exponential Moving Average (EMA), even as the US Dollar (USD) stays weak across the board as traders await the release of US inflation data. The GBP/USD is currently trading at 1.2724, a 0.18% decrease.
The GBP/USD trajectory is uncertain as market participants digest inflation and growth statistics from the United States and the United Kingdom.
The Pound Sterling (GBP) is trading within a narrow range due to a lack of catalyst during the first part of the week, as the UK’s economic docket will reveal its first part of market moving data on Friday, with Gross Domestic Product (GDP) for Q2 on preliminary reading expected to decelerate to 0%, down from the prior quarter’s 0.1% growth on QoQ data. Year on year, Q2 is expected to remain stable at 0.2%, but June MoM data is expected to rebound from May’s decline. If the UK economy continues to deteriorate, the GBP/USD could continue to fall, as data could prevent the Bank of England (BoE) from rapidly tightening policy.
Regarding that topic, money market futures chances for a quarter-point hike by the BoE in September are 85%, while December is fully priced in, implying the Bank Rate would peak at 5.75%, compared to 6.5% at the start of August.
Across the Atlantic, the US Department of Labor would release the July inflation report, which is expected to reveal that the US economy’s deflationary trend is still ongoing, but at a slower pace than Fed officials anticipated. The monthly and annual Consumer Price Indexes are expected to be 0.2% and 3%, respectively. Monthly data would remain constant from June, while year-over-year (YoY) growth would increase from 3.3% to 3.4%. Excluding volatile items, the core CPI is expected to continue at 0.2% MoM, with annual inflation remaining at 4.8%, as it was in June.
Officials at the US Federal Reserve had begun to shift between dovish and hawkish positions. However, GBP/USD traders must wait for tomorrow’s data, which may give some light on the US Federal Reserve’s (Fed) future monetary policy course.
The CME FedWatch Tool puts the likelihood of a rate hike in September at 13.5%, indicating that money market futures do not anticipate higher borrowing costs. Nonetheless, if Fed officials began to take a more dovish posture, any rate cut indications would weaken the currency, implying additional GBP/USD rise.
Given the circumstances, the GBP/USD could continue weak ahead of US data. Following that, an increase could weigh on the GBP/USD, but UK GDP data could rock the boat and push the pair higher. As a result, GBP/USD traders should use care.
GBP/USD Price Analysis: Technical outlook