GBP to USD Weekly Forecast: Bulls Eye $1.3450 on UK CPI Numbers

Highlights

• Last week, the GBP to USD rallied 1.98% to wrap up the week at $1.30918.
• Monetary policy divergence bets favoring the Bank of England supported a brief return to $1.31 before easing back.
• This week, the UK CPI Report and retail sales must support the hawkish BoE outlook for the GBP to USD to target $1.3450.

It is a big week for the GBP/USD, with economic indicators from the UK and the Bank of England in the spotlight.

However, investors must wait until Wednesday for the first of two reports that will likely influence the BoE beyond the summer break. The UK CPI Report will move the dial on Wednesday.

Economists forecast the UK annual inflation rate to soften from 8.7% to 8.2% and the core inflation rate to hold steady at 7.1%. Significantly, the BoE will consider both too high and support market bets on a BoE interest rate push beyond 6%.

On Friday, UK retail sales figures will also need consideration. A larger-than-expected rise in consumption would force the BoE to keep its foot on the gas. While interest rates are on the rise and inflation remains elevated, wage growth trends continue to support inflation at current levels.

Other stats include the GfK Consumer Confidence numbers for July, which should have a limited impact on the GBP to USD pairing.

With the economic calendar on the busy side, investors should also consider BoE chatter. MPC Member Dave Ramsden is on the calendar to speak on Wednesday.

The US Economic Calendar

With recent inflation numbers writing off the bets on a September interest rate hike, NY Empire State Manufacturing numbers kickstart the week.

However, retail sales figures will be the main report of the week on Tuesday. A slide in consumer spending would reignite fears of a US economic recession as investors shift focus from the Fed to the US economy.

Jobless claims and the Philly Fed Manufacturing Index will also move the dial on Thursday. We expect increased sensitivity to deteriorating labor market conditions.

Other stats include industrial production and housing sector numbers that should not impact the dollar.

GBP/USD Technical Indicators

Last week, the GBP to USD gained 1.98% to wrap up the week at $1.30918. A marked shift in sentiment toward Fed monetary policy expectations and a pickup in UK wage growth delivered the breakout week.

Daily Chart

The Daily Chart showed the GBP to USD hover below the $1.3195 – $1.3255 resistance band on Friday. Looking at the EMAs, the GBP to USD sat above the 50-day ($1.26608) and 200-day ($1.23768) 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 74.16 reading indicates the GBP to USD sitting in overbought territory. However, the 50-day and 200-day EMAs support further gains. A GBP to USD move through the $1.3195 – $1.3255 resistance band would support a run at $1.3450.

However, UK inflation and retail sales figures must be GBP-friendly to support a breakout from last week’s high of $1.31424.

4-Hourly Chart

Looking at the 4-Hourly Chart, the GBP to USD faces strong resistance at the $1.3150 psychological level. Despite the bearish Friday, the GBP to USD remains above the $1.2862 – $1.2785 support band.

Significantly, the GBP to USD also sits about 50-day ($1.29204) and 200-day ($1.27211) EMAs, sending bullish signals. The 50-day EMA pulled further away from the 200-day EMA, signaling a run at $1.3450 levels last visited in February 2022.

However, the GBP to USD must move through the lower level of the $1.3195 – $1.3255 resistance band to target $1.3450.

The 14-4H RSI reading of 68.63 indicates a bullish stance, with buying pressure outweighing selling pressure. Significantly, the RSI aligns with the EMAs and signals a possible breakout from $1.32 to target $1.3450.