The GBP/USD outlook points North as the pound rallies after data revealed a bigger-than-expected expansion in the UK economy in May. At the same time, investors were eagerly awaiting the US inflation report. 

The pound hit a four-month high on Thursday after the UK GDP report showed the economy expanded more quickly than economists forecast in May. The GDP rose by 0.4% in May, above estimates of 0.2%. Consequently, the likelihood of a BoE rate cut in August fell. If demand is rising again, it could drive inflation higher. Therefore, policymakers will hesitate to start lowering borrowing costs.

At the same time, services inflation and wage growth in the UK remain high. Although inflation has reached 2%, the underlying price pressure might continue challenging the BoE rate cut outlook. At the moment, there is a 50% chance the UK central bank will cut rates in August.

Furthermore, the rate cut outlook will continue changing depending on what the Fed does. Recent comments from Powell indicate caution despite softer inflation and a slowdown in the economy. However, policymakers have noted the weaker demand in the labor market that could pave the way for rate cuts. 

Investors are waiting to see the consumer inflation report for June. If there is further easing, it could give policymakers the confidence they need to start cutting interest rates. A more dovish Fed will allow other major central banks to assume similar stances.

GBP/USD key events today

• US Consumer Price Index report
• US initial jobless claims

GBP/USD technical outlook: Bullish momentum surges beyond 1.2850

(Click on image to enlarge)

GBP/USD 4-hour chart

On the technical side, the GBP/USD price is climbing after breaking above the 1.2850 key resistance level. The bullish bias is strong because the price has respected the 30-SMA as support and has made a higher high. At the same time, the RSI trades in the overbought region, supporting solid momentum. 

The new high is a sign that bulls are ready to continue the uptrend. Therefore, the price might soon revisit the 1.2900 key psychological level. The bullish trend will continue as long as the price trades above the 30-SMA and the RSI stays above 50.

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