- The US consumer inflation report showed a 0.3% jump in core inflation in August.
- The likelihood of a supersized 50 bps rate cut fell to 15%.
- The UK economy stagnated in July with no expansion.
The GBP/USD forecast shows bears in the lead as the dollar firms after a jump in US core inflation. At the same time, the pound continued declining after data earlier in the week showed no economic expansion.
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In August, the long-awaited US consumer inflation report showed a 0.3% jump in core inflation, bigger than the forecast of a 0.2% increase. Consequently, this lowered the likelihood of a supersized 50-bps rate cut to 15%. The dollar strengthened at the prospect of a gradual pace in rate cuts.
Nevertheless, the annual figure eased to 2.5%, approaching the Fed’s 2% target. Therefore, inflation is on a clear downtrend. However, there is little pressure for the Fed to start with a massive cut. However, there is still a risk that data after the September meeting will change and show a rapid decline. In such a case, the Fed might consider bigger rate cuts.
Investors will now watch wholesale inflation data due later today for more clues on the state of price pressures in the US.
Elsewhere, data on Tuesday revealed that the UK economy stagnated in July with no expansion. Meanwhile, economists had expected the economy to expand by 0.2%. The report showed weaker-than-expected performance, raising the chances of a Bank of England rate cut next week to 25%. Consequently, the pound fell.
GBP/USD key events today
- US core PPI m/m
- US PPI m/m
- Unemployment Claims
GBP/USD technical forecast: Shallow downtrend meets 1.3000 hurdle
On the technical side, the GBP/USD price has fallen to the 1.3000 support level before pulling back slightly. Bears have remained in control since price action showed a surge in momentum with a solid bearish candle near the 1.3200 resistance level.
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At the same time, the indicators support a bearish bias, with the SMA sitting above the price and the RSI under 50. However, the price is sticking close to the SMA, a sign that bears are not making large swings. Therefore, it might be hard to breach the 1.3000 support. Nevertheless, the bearish bias will remain if the price stays below the SMA.
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Saqib Iqbal
