• The GBP/USD forecast shows an unexpected surge in UK inflation.
• UK inflation increased by 3.5% in April, well above estimates of a 3.3% rise.
• Fed’s Alberto Musalem said the US labor market could weaken further. 

The GBP/USD forecast shows an unexpected surge in UK inflation that has dragged down BoE rate cut expectations. Meanwhile, the pound rallied to new peaks before pulling back. On the other hand, the dollar remained frail after Fed policymakers noted that the outlook for the US economy remained uncertain.

Data on Wednesday showed consumer inflation in the UK increased by 3.5% in April, well above estimates of a 3.3% rise. It was also a sharp climb from the previous reading of 2.6%. The unexpectedly hot figure led to a decline in BoE rate cut expectations. Currently market participants are pricing a total of 35-bps of rate cuts by the year’s end. 

On the other hand, Fed rate cut expectations soared last week after downbeat inflation numbers. Market participants are pricing a 67% chance of a cut in September. Initially, traders had expected a move in June. However, the US economy has proven resilient in April despite Trump’s tariffs. Still, policymakers believe it is too early to conclude that tariffs had little impact on the economy. 

On Tuesday, Fed’s Alberto Musalem said the labor market could weaken further despite the trade truce between China and the US. 

GBP/USD key events today

Market participants are not looking forward to any key reports from the UK or the US. 
 

GBP/USD technical forecast: Bulls break key resistance

(Click on image to enlarge)

GBP/USD 4-hour chart

On the technical side, the GBP/USD price has broken above the 1.3401 resistance level. This is a significant break as the price initially traded in a range. Currently, the price trades well above the SMA with the RSI above 50. Therefore, the bullish bias is strong. 

For a long time, GBP/USD has maintained a sideways move between the 1.3251 support and the 1.3401 resistance. The price made several attempts to break out of this consolidation area but failed. In the latest move, bulls have taken charge. 

The price is currently retesting the recently broken range resistance. If it bounces higher, it will confirm the breakout. Moreover, the price would likely make new highs above the 1.3500 key psychological level. On the other hand, the price will remain in consolidation if it drops back below the 1.3401 key level.

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