GBP to USD Forecasts: Bulls Eye $1.26 on UK Wages and US CPI Report

It is a busy Tuesday session for the GBP to USD. After a quiet start to the week, the UK Labor Market Overview Report will be in focus this morning.

While claimant count numbers and the unemployment rate will influence, wage growth will be the likely area of focus. The Bank of England remains committed to bringing inflation to target. With wages a consideration, a more marked increase in wage growth would pressure the BoE to deliver a hawkish policy move at the next MPC meeting.

A hawkish BoE would also raise the prospects of a UK recession. The UK economy has proven resilient to the Bank of England’s responses to elevated inflation until now. Sentiment could turn bearish should MPC members speak of more aggressive measures to bring inflation to target.

Economists forecast average earnings + bonuses to increase by 6.9% in April versus 6.7% in March.

However, investors should also consider Bank of England chatter. Bank of England Governor Andrew Bailey is on the calendar to speak today. The BoE Governor will attend the Lords Economic Affairs Committee hearing ‘How is Independence Working?’

GBP to USD Price Action

This morning, the GBP/USD was up 0.19% to $1.25294. A mixed start to the day saw the GBP to USD fall to an early low of $1.24997 before rising to a high of $1.25353.

Technical Indicators

Resistance & Support Levels

The Pound needs to move through the $1.2530 pivot to target the First Major Resistance Level (R1) at $1.2574 and the Monday high of $1.25991. A return to $1.2550 would signal an extended breakout session. However, the Pound would need UK and US economic indicators to support a breakout session.

In the event of an extended rally, the GBP/USD would likely test the Second Major Resistance Level (R2) at $1.2643. The Third Major Resistance Level sits at $1.2755.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.2462 in play. However, barring a data-fueled sell-off, the GBP/USD should avoid sub-$1.2450 and the Second Major Support Level (S2) at $1.2418. The Third Major Support Level (S3) sits at $1.2306.

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The GBP/USD sat above the 50-day EMA, currently at $1.24890. The 50-day EMA pulled away from the 200-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above the 50-day EMA ($1.24890) would support a breakout from R1 ($1.2574) to target R2 ($1.2643) and $1.2650. However, a fall through the 50-day EMA ($1.24890) would bring the 100-day EMA ($1.24691) and S1 ($1.2462) into view. A fall through the 50-day EMA would send a bearish signal.

The US Session

Eying the US session, the all-important US CPI Report is in focus.

The US CPI Report will be the main report of the day. Hotter-than-expected US inflation numbers would tip the monetary policy divergence scales in favor of the Greenback.

Economists forecast the US annual inflation rate to soften from 4.9% to 4.1%, supporting a Fed pause on Wednesday.

The probability of a June rate hike fell from 29.9% to 18.5% this morning, according to the CME FedWatch Tool. However, the chance of a 25-basis point July Fed rate hike increased from 52.8% to 59.1%. Significantly, bets on a 50-basis point July interest rate hike fell from 17.1% to 11.9%.