The GBP/USD forecast points south, although the pair recovered slightly after better-than-expected PMI data. At the same time, the dollar held steady ahead of US GDP and inflation data. 

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Data on Wednesday revealed that business activity in Britain’s manufacturing sector improved more than expected. The PMI rose from 50.9 to 51.8, showing continued expansion, better than the forecast of 51.1. 

Meanwhile, service sector activity also improved from 52.1 to 52.4. However, the figure slightly missed estimates of 52.5. The expansion in the manufacturing and services sectors could further challenge the outlook for Bank of England rate cuts. Notably, bets for a cut in August have fallen since the last inflation report showed high service price pressures.

If the Bank of England keeps delaying cuts, the pound will continue to have an edge over other major currencies, including the dollar. The decline in BoE rate cuts saw the pound reach a one-year high last week.

Meanwhile, the outlook for Fed rate cuts has become clearer, with investors fully pricing in a rate cut in September. Therefore, the US central bank will likely start lowering borrowing costs ahead of the Bank of England. However, before that, investors will watch data on GDP and inflation. 

Economists expect the economy to expand by 2.0% in the second quarter, bigger than the 1.4% expansion in the first quarter. Meanwhile, the core PCE might ease from 2.6% to 2.5% in June.

GBP/USD key events today

• US flash manufacturing PMI
• US flash services PMI

GBP/USD technical forecast: Bears weaken soon after taking charge

(Click on image to enlarge)

GBP/USD 4-hour chart

On the technical side, the GBP/USD price has broken below the 1.2900 support level. However, the break is weak because price action shows fading bearish momentum. The price is making small-bodied candles. At the same time, it is staying close to the 30-SMA, a sign that bears are not strong enough to make big swings. 

Notably, the trend recently reversed when the price broke below the 30-SMA. Continuing this trend would allow the price to revisit the 1.2800 key level. However, if bears are not strong enough to find their footing below 1.2900, bulls might resurface and push above the SMA. 

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