GBP to USD Forecasts: Bears Eye $1.2550 on UK GDP and US Inflation

Highlight

• The GBP to USD found support this morning, gaining 0.06% to $1.26188.
• It is a busy morning session, with the all-important UK GDP Report in focus.
• However, the US Core PCE Price Index and personal spending numbers will have more impact on the pair.

It is a busy day ahead for the GBP to USD. After a quiet Monday through Thursday, finalized Q1 UK GDP will garner plenty of interest this morning.

On Wednesday, Bank of England Governor Andrew Bailey spoke at the ECB Central Bank Forum, saying,

“The cumulative data – both particularly on the labour market and on the inflation release we had, which showed to us clear signs of persistence – caused us to conclude that we had to make really quiet a strong move.”

The GDP numbers must reflect a resilient UK economy to prevent a GBP to USD sell-off on recessionary fears.

Economists forecast the UK economy to expand by a lackluster 0.1% in Q1, unchanged from prelim figures. Downward revisions to the quarter-on-quarter and year-over-year numbers would fuel selling pressure. However, weak numbers may not be enough to force the BoE to hit the proverbial policy brakes.

With the UK GDP Report in focus, investors should track Monetary Policy Committee Member commentary throughout the day. However, no MPC members are on the calendar to speak today, leaving chatter with the media to move the dial.

Earlier today, private sector PMI numbers from China set the tone. In June, the China NBS Manufacturing PMI increased from 48.8 to 49.0, while the Non-Manufacturing PMI fell from 54.5 to 53.2. Economists forecast the manufacturing PMI to rise from 48.8 to 49.0 and the services PMI to fall from 54.5 to 53.7.

GBP to USD Price Action

This morning, the GBP to USD was up 0.06% to $1.26188. A mixed start to the day saw the GBP to USD fall to an early low of $1.26077 before rising to a high of $1.26235.

Technical Indicators

Looking at the EMAs and the 4-hourly chart, the EMAs sent bearish signals. The GBP/USD sat above the 200-day EMA, currently at $1.25941. The 50-day EMA closed in on the 100-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bearish signals.

A move through R1 ($1.2655) and the 100-day EMA ($1.26579) would give the bulls a run at the 50-day EMA ($1.26858) and R2 ($1.2699). However, a fall through the 200-day EMA ($1.25941) would bring S1 ($1.2579) into view. A move through the 50-day EMA would send a bullish signal.

Resistance & Support Levels

The US Session

It is a busy US economic calendar with the all-important US Core PCE Price Index numbers in focus. Sticky inflation or an unexpected pickup in US inflationary pressure would support Fed Chair Powell’s consecutive rate hike warning.

Other stats include personal spending/income and finalized consumer sentiment figures that need consideration. We expect the spending and income figures to garner more interest, however.

Disappointing UK GDP numbers and hotter-than-expected US inflation numbers would weigh heavily on the GBP to USD pair.

After Fed Chair Powell’s hawkish comments and the US economic indicators from Thursday, the markets cemented a July rate hike ahead of today’s inflation numbers. Investors also raised their bets on a September move.

According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike stood at 89.3% versus 81.8% on Wednesday. Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 26.8%, up from 16.4% on Wednesday.