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GBP/USD eyes 1.30 after sticky service sector inflation

• UK services CPI holds at 5.7% vs 5.6% expected
• The market reins in BoE rate cut expectations
• GBP/USD looks to retake 1.30

The pound is rising as traders pare back August Bank of England interest rate cut expectations after sticky service sector inflation data.

CPI held steady at 2% yoy in June, unchanged from May and defying expectations of a move lower to 1.9%. Meanwhile, core inflation also held steady unexpectedly at 3.5%, defying a fall to 3.4%. Service sector inflation, which policymakers will be watching closely, also remained sticky at 5.7%, almost three times the BoE target and defying expectations of a fall to 5.6%.

Following the data, traders have grown increasingly convinced that the Bank of England will leave interest rates unchanged in August, pricing in just a 30% probability of a 25 basis point reduction at the central banks meeting next month. This is down from just under 50% on Tuesday. Expectations that the interest rates will remain high for longer have boosted the pound, which trades 0.1% higher, reversing yesterday's losses and has reached 1.30 for the first time in a year.

GBP has outperformed its major peers on the view that the Bank of England is likely to deliver fewer rate cuts than the Federal Reserve this year. The market is betting on two quarter-point rate cuts from the Bank of England, while investors are speculating that the Fed could cut as many as three times in 2024.

Looking ahead, US and Federal Reserve speakers Christopher Waller and Thomas Harkin are due to speak. Industrial production building permits on the Fed's Beige Book are also scheduled to be released.
 

GBP/USD forecast – technical analysis

GBP/USD trades within a rising channel dating back to April. The price has also risen above the falling trendline dating back to July 2023. Bull continue to probe resistance at 1.30. A rise above here is need to bring 1.3150, the July 2023 high into focus. However, buyers should be wary of the RSI in overbought territory.

Support can be seen at 1.29, the March high. Below here, 1.2860, the June high, comes into play ahead of 1.28.

(Click on image to enlarge)

DAX edges lower on trade jitters ahead of EZ CPI data

• US considers more severe trade restrictions
• EZ CPI comes ahead of tomorrow's ECB rate decision
• DAX is still being guided higher by the 100 SMA

European shares are opening a touch lower in risk-off mode after disappointing numbers from semiconductor firm ASML and as the market prepares to face potentially stricter trade rules from the United States.

Dutch firm ASML dropped 5.3% after the chipmaker equipment supplier fell short of estimates for Q3 sales.

Adding to the downbeat mood was a report saying that the Biden administration has warned its allies it's considering using more severe trade restrictions if companies continue providing China access to advanced semiconductor technology. However, with the US elections just months away allies may see little reason to alter their policies.

Meanwhile, Adidas trades up over 4% after the sportswear maker increased its full-year earnings forecast following stronger-than-expected second-quarter performance. Puma is also gaining.

Attention will also be on the final eurozone inflation data for June which comes ahead of the European central bank's rate interest rate decision tomorrow. Inflation is expected to confirm an easing to 2.5% YoY, down from 2.6%. Meanwhile, the ECB is expected to leave interest rates unchanged at 3.75% but could prepare the market for a cut in September after reducing rates in June. A lower interest rate environment is beneficial for stocks.
 

DAX forecast – technical analysis

The DAX is being guided higher by the 100 SMA. Should momentum continue buyers will look to rise above 18800 the June and July high, to extend gains towards 18930 and fresh all-time-highs.

Support can be seen at 18260 the 100 SMA. A fall below here opens the door to 18000.

(Click on image to enlarge)

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