British Pound (GBP/USD) Forecast Led by US CPI, FOMC Minutes and Gov Bailey

GBP/USD FUNDAMENTAL BACKDROP

The pound is tracking marginally higher this Wednesday morning ahead of three key potential economic drivers (refer to economic calendar below). The first being US CPI that has been dominating global market headlines and could set the tone short-term. Following on from last week’s strong US Non-Farm Payroll (NFP) report, elevated inflation figures today could sustain a more hawkish narrative going forward and limit GBP upside. The second high impact event stems from the FOMC minutes which is unlikely to have as much bearing on the market as the CPI report but it will interesting to understand the thinking behind the decision to hike interest rates in such a tumultuous period during the height of the recent banking crisis. I will be looking out for any mention of rate cuts in the second half of this year which may bring some relief for the pound.

GBP/USD ECONOMIC CALENDAR

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From a UK perspective, Governor Bailey is scheduled to speak in Washington today with markets keenly awaiting on guidance for the BOE’s upcoming meeting – currently favored for a 25bps hike (see table below). Taking into account other major central banks have paused their hiking cycle, there is a chance that the BOE may follow suit considering the UK’s large financial sector and weak economic growth forecast by the IMF yesterday.

The BOE’s Monetary Policy Committee (MPC) has also just added a new external member for a three year period beginning on the 5th of July 2023. Megan Greene has replaced the BOE’s most dovish member Silvana Trenreyro and will add an interesting dynamic to the committee.

BANK OF ENGLAND INTEREST RATE PROBABILITIES

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TECHNICAL ANALYSIS

GBP/USD DAILY CHART

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Technically, price action on the daily GBP/USD chart shows a Relative Strength Index (RSI), hovering near overbought territory. In the event of a CPI miss, I cannot see cable maintaining levels above 1.2500 for very long. The pair continues to trade within an upward trending channel (black) and a break below channel support could spark a sell-off below the 1.2400 psychological level and beyond.

Key resistance levels:

  • 1.2667
  • 1.2500

Key support levels:

  • 1.2400/channel support
  • 1.2345

MIXED IG CLIENT SENTIMENT

IG Client Sentiment Data (IGCS) shows retail traders are currently SHORT on GBP/USD, with 55% of traders currently holding short positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment; however, due to recent changes in long and short positioning we arrive at a short-term cautious disposition.

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