The GBP/USD outlook is bullish as the pound extends its rally after the Labour Party won last week’s UK elections. Meanwhile, the dollar remains frail ahead of inflation and after the US nonfarm payrolls report showed weaker demand in the labor market.

Pound bulls cheered a Labour Party win last Thursday due to a brighter outlook for the UK economy. The new finance minister, Rachel Reeves, will speak on Monday and might reveal plans to improve economic growth in the UK. Furthermore, the end of the elections brought relief as it removed the cloud of political uncertainty in the country. 

The pound is still the best performer against the dollar this year among major currencies. There is a 63% chance that the Bank of England will cut rates at the August meeting. Notably, the UK’s inflation has eased while the economy remains solid. Investors will now pay attention to BoE policymakers who have remained silent since the election was announced. The first speaker on Monday will be MPC member Jonathan Haskel. 

On the other hand, the US will release consumer and producer inflation figures this week. Economists expect the annual figure to ease from 3.3% to 3.1%. If this happens, market participants will raise the likelihood of a Fed cut in September.

At the moment, there is a 76% chance of a cut in September. This came after Friday’s employment figures showed an unexpected increase in the unemployment rate. At the same time, average hourly earnings eased. A slowdown in the economy accompanied by softer inflation could prompt the Fed to lower borrowing costs soon.

GBP/USD key events today

No key UK or US events are scheduled today, so the pair may consolidate.

GBP/USD technical outlook: Bulls eying 1.2850 resistance in a solid rally

(Click on image to enlarge)

GBP/USD 4-hour chart

On the technical side, the GBP/USD price is on a strong bullish rally that has broken above the 1.2800 resistance level. Moreover, the price sits well above the 30-SMA, showing a steep rally. Meanwhile, the RSI, which trades above 70 in the overbought region, supports solid bullish momentum.

The next barrier is at the 1.2850 level. After such a steep rally, the price might pause here. A pause or a pullback would allow the 30-SMA to catch up before the trend continues.

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