The GBP/USD forecast leans slightly bearish as easing UK consumer inflation data boosts expectations for Bank of England rate cuts. Nevertheless, the larger bullish trend remains intact as the dollar weakens after downbeat US wholesale inflation data. 

Data on Wednesday revealed that the UK consumer price index rose by 2.2% in July. The value rose above the Bank of England’s 2% target for the first time in two months. Nevertheless, it was a more minor increase than the forecast of 2.3%.

Meanwhile, service inflation increased by 5.2% in July after a 5.7% increase in the previous month. This decline is a significant relief for the BoE. Notably, policymakers have remained cautious due to high service inflation. 

Although headline inflation reached the central bank’s target, few were ready to lower borrowing costs because service inflation was a concern. Therefore, July’s figures might give more policymakers the confidence to continue cutting interest rates. After the CPI report, traders raised the chances of a BoE cut in September to 48%. Meanwhile, they expect 46 bps in total of rate cuts this year. 

On the other hand, the dollar remained fragile after softer-than-expected US wholesale inflation figures. The PPI increased by 0.1% in July, missing forecasts of a 0.2% increase. As a result, investors are pricing a higher chance of a super-sized 50 bps Fed rate cut in September. Later today, the CPI report will further shape the outlook for Fed monetary policy.

GBP/USD key events today

• US Core Consumer Price Index m/m
• US Consumer Price Index m/m
• US Consumer Price Index y/y

GBP/USD technical forecast: Bullish momentum surges with 0.618 Fib in sight

(Click on image to enlarge)

GBP/USD 4-hour chart

On the technical side, the GBP/USD price has broken above a strong barrier comprising the 0.382 Fib and the 1.2800 key resistance level. As a result, the price has risen far above the 30-SMA to make a new high. Meanwhile, the RSI trades near the overbought region.

Furthermore, after the rally, bears resurfaced and pushed the price to retest the recently broken barrier. Since the bullish bias remains strong, the next target might be at the 1.2900 level near the 0.618 Fib.

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