GBPUSD Inches Up On Expectations of Cooling US Economy

Summary:
• GBPUSD rose marginally on Friday as traders' positions signaled that the market expects the PCE figures to signal slowing inflation rate.

GBPUSD rose marginally to trade at 1.2649 in the European session, as the market reacted to better-than-expected UK GDP results. However, the pound’s gains against the US dollar could come under pressure from the US Personal Consumption Expenditure (PCE) price index data set for release later on Friday. The GPPUSD has ended each of the last three weeks in the red, a decline last witnessed in February.

The UK’s Office for National Statistics reported earlier on Friday that the UK economy grew by 0.3 percent in the first quarter of the year, revised upwards from 0.2 percent. That injected confidence in the trajectory of the UK economy which ran into headwinds in 2023, including a contraction in the last quarter of the year.

Similarly to the UK economy, the US economy also grew more than previously expected. The Q1 2024 GDP reading released on Thursday showed that the economy expanded by 1.4 percent, 0.1 percent higher than the preliminary figure.  However, traders chose to largely ignore the GDP reading, with the Initial Jobless Claims figures given more weight. First time unemployment insurance applications dropped to 233k in the week ending June 20, from the previous week’s 236k.

Looking ahead into the day on Friday, the PCE reading will be the highlight of the day. The forecast figure is expected to show a decline in the annualized Core PCE to 2.6 percent in May, and a month-on-month decline to 0.1 percent from April’s 0.2 percent.  If the reading signals a decline in inflation rate, it could raise the prospects of a Fed rate cut in September, which could bring tailwinds to GBPUSD.

Technical analysis

GBPUSD has a bullish-leaning momentum, and the upward momentum will likely continue if the action stays above 1.2637. That could lead to further gains past the first resistance at 1.2650, and continued control by the buyers at that point will likely breach the resistance and build the momentum to move to 1.2663. On the other hand, a move below 1.2637 will strengthen the sellers to take control of the market, with the first support likely to be at 1.2624. Continued control by the sellers at that point could break the support, invalidate the upside narrative and potentially build the momentum to move the pair further lower to test 1.2613.