- Recently, risk appetite has been on the rise following the latest US inflation data while the US dollar has lost ground.
- According to forex trading, the GBP/USD exchange rate has risen to around the 1.2760 area after finding support at the 1.2700 level.
- However, the GBP/EUR exchange rate has fallen to 1.1730 after stronger-than-expected inflation data from the eurozone.
According to the economic calendar results, in line with agreed expectations, the US personal consumption expenditures (PCE) price index rose 0.3% in April, with the year-over-year rate holding steady at 2.7%. Core prices rose 0.2% on the month compared to expectations of 0.3%, although the annual rate was in line with expectations at a steady 2.8%. Moreover, there had been some concerns that the monthly rate would be stronger than expected and add to concerns about US inflation trends. As a result, there was an element of relief surrounding the 0.2% monthly increase.
ING Bank commented: "We need to see the inflation rate consistently hit 0.17% on a monthly basis to bring inflation down to 2% on an annual basis, so it's still very hot, but the momentum is encouraging after some disappointment in early 2024." Added, "Overall, this is a modest support for a September rate cut, but we need to see at least two more 0.2% readings between now and then, which is further evidence of a slowdown in consumer spending and a move in the unemployment rate to the upper 4.2% range perhaps. Anything is possible, but it's not guaranteed."
According to Scotiabank: "Price remains cohesive after rejecting the 1.28 resistance area at the beginning of the week. While the US dollar appears softer overall, losses are expected to stabilize around 1.27 today." Overall, according to licensed trading platforms, the GBP/USD pair needs to break through the 1.2800 resistance level to gather any significant momentum.
Recently, the Eurozone headline inflation rate rose to 2.6% in May from 2.4%, slightly above the expected 2.5%. The core rate rose to 2.9% from 2.7%, above the market expectation of 2.7%. Moreover, the European Central Bank is bound to remain sensitive to inflation developments. There is a strong expectation that the ECB will cut interest rates at its June meeting by 25 basis points to 4.25%. Commenting on this, ING Bank stated, “With a full chorus of ECB Governing Council members once again singing about interest rate cuts, anything other than a 25 basis point cut this week would come as a huge surprise, not to mention a severe loss to the central bank’s reputation.”
He added; “In the past, interest rate cutting cycles have mainly been triggered by either recession or crisis. Fortunately, none of these things are threatening the eurozone economy at the moment. Therefore, there is no urgent need for the ECB to cut interest rates or engage in a longer series of rate cuts. Instead, the ECB will cut rates not because it has to, but simply because it can.
According to Scotiabank: "The modest pullback could revive thoughts of an earlier Fed cut, as pricing now reflects that the first full 25 basis point easing won't come until December."
In terms of UK data, business confidence data from Lloyds Bank showed strong progress for May to an 8-year high. Nationwide also reported a 0.4% increase in house prices for May with an annual increase of 1.6%. However, there was a slight drop in mortgage approvals to 61,100 for April from a revised 61,300 the previous month.
In this context, global developments dominated the pound’s movements.
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Technical forecasts for the GBP/USD pair today:
The upward trajectory of the GBP/USD exchange rate remains in place. As we mentioned before, based on the daily chart performance, the resistance level at 1.2775 will mark the beginning of the bulls' control. To confirm the strength of this trend, it needs to move towards the psychological resistance level of 1.3000. Conversely, according to the daily chart performance, the support level at 1.2600 will remain the key point for the bears to regain control of the direction. Ultimately, we expect the GBP/USD rate to remain stable around its recent gains until the markets react to the central banks' announcements this week, along with the U.S. employment figures.
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