GBP to USD Forecasts: Bulls Eye $1.30 on the BoE and US Inflation

Highlights

• The GBP to USD had a bullish start to the session, with expectations of softer US inflation numbers driving buyer appetite.
• It is a busy day on the UK economic calendar. The UK Financial Stability Report and BoE Governor Andrew Bailey will be in focus today.
• However, the US CPI Report may have the final say.

It is a busy day ahead for the GBP to USD. There are no UK economic indicators to consider in the aftermath of the UK Labour Market Overview Report that sent cable through $1.2950.

However, the BoE will be in focus today. The BoE UK Financial Stability will draw interest, with BoE Governor Andrew Bailey also on the docket to speak today. Signs of bank sector stress could lead to a credit crunch, which would weigh on the GBP/USD.

In the current inflation environment and expectations of the BoE to push rates beyond 6%, access to credit will be vital to keep the economy on an even keel.

Investors should monitor Bank of England chatter. However, no Monetary Policy Committee members are on the calendar to speak today, leaving commentary with the media to influence.

On Monday, Bank of England Governor Andrew Bailey spoke at the Financial and Professional Services Dinner (1600 BST). The BoE Governor vowed to see the job through on taming inflation, saying,

“It is crucial that we see the job through, meet our mandate to return inflation to its 2% target, and provide the environment of price stability in which the UK economy can thrive.”

Bailey added,

“Both price and wage increases at current rates are not consistent with the inflation target. Currently, at 8.7% in the latest data, consumer price inflation is unacceptably high, and we must bring it down to the 2% target.”

Notably, the UK Labour Market Overview Report raised bets on a more hawkish BoE policy outlook on Tuesday, with UK average earnings (including bonuses) up 6.9% in May versus 6.7% in April.

The US Session

It is a big day on the US economic calendar. The US CPI Report will be in focus this afternoon. Sticky inflation would fuel bets on a September interest rate hike. This week, less hawkish Fed commentary weighed on the greenback. Economists forecast the US annual inflation rate to soften from 4.0% to 3.1%.

However, beyond the CPI Report, investors should continue to monitor Fed chatter. FOMC Members Neil Kashkari and Raphael Bostic speak after the CPI Report.

Despite the recent Fed chatter, the bets on July and September interest rate hikes remained steady. According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike was 92.4% versus 93.0% on Monday. Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 22.2%, down from 22.3% on Monday.

We expect the CPI report to impact sentiment toward Fed monetary policy.

GBP to USD Price Action

Daily Chart

The Daily Chart showed the GBP to USD sit above the $1.2775 – $1.2800 resistance band. Looking at the EMAs, the GBP to USD remained above the 50-day ($1.26221) and 200-day ($1.23617) EMAs, signaling bullish momentum over the near and long term.

Notably, the 50-day EMA continued to pull away from the 200-day EMA and reflected a bullish trend.

Looking at the 14-Daily RSI, the 72.34 reading signaled overbought territory, aligned with the 50-day and 200-day EMAs. A GBP to USD hold above the upper level of the $1.2775 – $1.2800 resistance band would support a run at $1.30. However, the GBP to USD would need to avoid a fall to sub- $1.2950 to target $1.30.

4-Hourly Chart

Looking at the 4-Hourly Chart, the GBP to USD broke through the $1.2950 psychological resistance level. After the bullish Monday and Tuesday sessions, the GBP to USD remains above the resistance band and the 50-day ($1.27874) and 200-day ($1.26621) EMAs, sending bullish signals.

Significantly, the 50-day EMA pulled further away from the 200-day EMA, signaling a hold above the $1.2775 – $1.2800 resistance band to target $1.30.

However, the GBP to USD must avoid sub-$1.2950 and the $1.2775 – $1.2800 resistance band to support a sustained run at $1.30.

The 14-4H RSI reading of 75.22 signaled overbought territory, with buying pressure outweighing selling pressure. Significantly, the RSI aligns with the EMAs and signals a run at $1.30.