GBPUSD was on course to register the third successive session of gains on Wednesday, as it rose to 1.2722 after rising by 0.1 percent in the intraday session. The good news for the UK economy is the decline in inflation to match the Bank of England’s target. US markets remain closed on Wednesday as the nation celebrates Juneteenth holiday, providing the pound with an opportunity to leverage.
The UK’s Office of National Statistics announced that the UK Core CPI (excluding food and energy) came in at 3.5 percent in May, declining from April’s 3.9 percent to match the forecast estimate. Headline inflation declined from 2.9 percent to 2.0 percent, matching analysts’ forecasts and aligning with the BOE’s target. While this reduces the likelihood of the central bank reducing interest rates, it also provides support for the GBPUSD currency pair, as investors will likely view the inflation trajectory as positive for the UK economic policies.
Also, the UK producer Price Index rose from 0.3 percent to 0.0 percent, and will provide support to the pound. Meanwhile, the dollar will continue to be under pressure from the lower-than-expected Retail Sales data released on Tuesday. US Retail Sales rose from minus 0.2 percent to 0.1 percent in May, falling short of the forecast figure of 0.3 percent. This strengthened the view that higher-for-longer interest rates have hurt consumers’ purchasing power and might trigger the Fed to consider cutting rates in September. The sentiment around the data will likely fuel GBPUSD on Wednesday, ahead of the BoE Interest Rate decision on Thursday.
Technical analysis
The buyers are currently in control of the GBPUSD market, and the upside will likely continue if they keep the exchange rate above 1.2716. The resulting momentum will likely meet the first resistance at 1.2734, and extended control by the buyers at that point will break the resistance and potentially test 1.2750. Alternatively, a move below 1.2716 will favour the sellers to take control, and the first support will likely be established at 1.2692. A breach of that support will invalidate the upside narrative and could result in extended losses to test 1.2673.
