- UK consumer spending strengthened in June.
- The pound is facing its most considerable weekly loss against the dollar.
- Data suggested the US labor market remains resilient.
Today’s GBP/USD outlook is bullish. UK consumer spending strengthened in June, exceeding expectations despite high inflation, thanks to increased wage growth. This report has bolstered the case for more rate rises by the Bank of England later this year.
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Notably, official data indicated retail sales in June rose by 0.7% compared to May, surpassing the forecasted 0.2% increase. Moreover, they fell 1.0% on a year-on-year basis, better than the anticipated 1.5% decline.
Despite the positive data, the pound still faced its most considerable weekly loss against the dollar since January. This came after data revealed that British inflation cooled more rapidly than predicted last month. Consequently, traders revised their expectations for UK rate rises downward.
On the other hand, the dollar remained stable on Friday as data suggested the US labor market’s resilience could prompt the Fed to maintain higher interest rates for an extended period. Recent data showed a surprising decline in the number of Americans filing new claims for unemployment benefits. It indicated ongoing tightness in the labor market.
Consequently, the market expects a 25 basis point increase from the Fed next week. Furthermore, the US central bank’s likelihood of further rate hikes has slightly increased following the latest data.
Christian Scherrmann, US economist at DWS, noted that the last rate hike in this cycle might be approaching, but any shift towards a more dovish stance seems unlikely. He also warned that market optimism regarding recent “good” inflation news might be excessive.
GBP/USD key events today
Investors are not expecting significant economic releases from the UK or the US today. Therefore, the pair will likely consolidate ahead of more data next week.
GBP/USD technical outlook: Bears to return after a weak rebound.
On the charts, GBP/USD has recovered slightly, pausing the recent decline. However, the bearish bias remains strong as the price has made a lower low below the 30-SMA. Furthermore, the RSI points to solid bearish momentum below 50.
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Although the pound has rebounded, the recovery has been weak, as seen in the small-bodied candles. This means the price might not get to the 1.2950 resistance level. Bears might soon return, targeting the 1.2801 support level.
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Saqib Iqbal
