GBP to USD Forecasts: Sub-$1.23 in View on US Inflation and Fed Bets

It is a busy Friday session for the GBP/USD. UK retail sales figures for April will be in focus. Following the pickup in core inflation, we expect increased sensitivity to the retail sales figures. A larger-than-expected increase in retail sales would fuel inflationary pressure and give the Bank of England more reason to take a more hawkish policy outlook.

While the retail sales figures will influence, market sentiment toward the US debt ceiling crisis will remain the key driver.

Investors should also consider central bank chatter today and the reaction to the inflation and retail sales numbers. However, with no Monetary Policy Committee members on the calendar to speak today, commentary with the media would move the dial.

GBP to USD Price Action

This morning, the GBP/USD was up 0.06% to $1.23282. A mixed start to the day saw the GBP/USD fall to an early low of $1.23109 before rising to a high of $1.23365.

Technical Indicators

Resistance & Support Levels

The Pound needs to move through the $1.2339 pivot to target the First Major Resistance Level (R1) at $1.2369 and the Thursday high of $1.2387. A return to $1.2350 would signal an extended breakout session. However, the Pound would need economic indicators and US debt ceiling-related news 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 $1.2418. The Third Major Resistance Level sits at $1.2497.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.2291 in play. However, barring another risk-off-fueled sell-off, the GBP/USD should avoid sub-$1.2250. The Second Major Support Level (S2) at $1.2260 should limit the downside. The Third Major Support Level (S3) sits at $1.2181.

Looking at the EMAs and the 4-hourly chart, the EMAs send bearish signals. The GBP/USD sits below the 50-day EMA, currently at $1.24204. The 50-day EMA pulled back from the 200-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bearish signals.

A move through R1 ($1.2369) would give the bulls a run at R2 ($1.2418) and the 50-day EMA ($1.24204). However, failure to move through the 50-day EMA ($1.24204) would leave S1 ($1.2291) in view. A move through the 50-day EMA would send a bullish signal.

The US Session

Looking ahead to the US session, it is a busy day on the US economic calendar. Core durable goods orders, Core PCE Price Index, personal spending/income, and Michigan consumer sentiment numbers will be in focus.

We expect the Core PCE Price Index numbers to have the most impact. Sticky inflation would fuel bets of a 25-basis point Fed interest rate hike in June and ease expectations of an H2 interest rate cut.

Economists forecast the Core PCE Price Index to increase by 4.6% year-over-year in April versus 4.6% in March.

According to the CME FedWatch Tool, the probability of a 25-basis point Fed interest rate hike in June jumped from 36.4% to 52.2% on Thursday. Better-than-expected labor market and GDP numbers supported the shift in sentiment ahead of today’s inflation numbers.