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Sterling has had a poor start to the week. The GBP/USD, which slid more than 1% last week, and extended its decline into Monday’s session before staging a mild rebound off a key support area on Tuesday. The cable’s recent poor form comes after market sentiment soured on the pound following a string of weak UK economic data, which heightened expectations for further rate cuts by the Bank of England this year—starting with a likely reduction in August. At the same time, investor sentiment shifted in favour of the US dollar last week amid speculation that the US may introduce higher tariffs on major trading partners after the extended deadline of August 1.  On Friday, Donald Trump signalled a potential 35% tariff on select Canadian imports and then at the weekend floated the possibility of imposing similar or even higher duties—up to 30%—on Mexican and European Union goods if new agreements aren't reached before the deadline. As both the UK and US prepare to release key inflation data this week, the GBP/USD outlook will be tested once again, making it our currency pair of the week.
 

Dollar could extend gains amid inflation fears and Trump’s fiscal plans

The US dollar index found renewed support last week, driven in part by stronger-than-expected economic data and, more notably, growing concerns about inflation. President Trump's threats of higher tariffs and his expansive fiscal policies have raised the prospect of stickier inflation. Although markets still anticipate a potential Federal Reserve rate cut in September, persistent inflationary pressures could cause the Fed to hold steady or slow the pace of monetary easing beyond that. As long as investor confidence in US monetary policy remains intact, the dollar may continue to benefit from this shift in outlook.
 

Week ahead: UK and US CPI reports could shape GBP/USD forecast

• US CPI – Tuesday, July 15

While the inflationary effects of Trump’s tariffs and proposed fiscal measures have yet to be reflected clearly in economic data, signs of persistent inflation could begin to surface. Should inflation prove more resilient than expected, it may delay or limit the Fed’s ability to cut rates. Today’s CPI report for June is due for release shortly. Both headline and core CPI are expected to have increased by 0.3% month-on-month. Anything bigger and the dollar could rally.

• UK CPI – Wednesday, July 16

Fresh data on Friday revealed the UK economy contracted for a second consecutive month amid a deepening manufacturing downturn. The question now is whether ongoing economic weakness and recent pound strength might help tame imported inflation. A soft CPI reading would likely lead markets to price in additional rate cuts later in the year.

• US Retail Sales – Thursday, July 17

Despite ongoing trade tensions, recent indicators suggest the US economy remains relatively resilient. Consumer activity will be in focus following a 0.3% m/m decline in core retail sales in May—a figure expected to rebound in June.
 

GBP/USD technical analysis

(Click on image to enlarge)

From a technical perspective, the GBP/USD chart has deteriorated after breaching several important short-term support levels, notably around 1.3630 and the 1.3530–1.3550 zone. These levels now act as near-term resistance. On the downside, the next critical level is the September high of 1.3434, a level which was being tested at the time of writing. This area also aligns with a rising trend line, marking a pivotal technical zone for the pair. If we break below here, then watch out for further technical selling below it, targeting liquidity below the June low of 1.3370 initially, ahead of low 1.30s next.

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