- GBP/USD gave up some of its gains in June by the end of the month, but with technical support emerging around 1.26, it is likely to consolidate between there and a nearby resistance pocket around 1.2850 this week.
- The GBP/USD pair stabilized around 1.2685 at the time of writing.
- The pound sterling ended last week’s trading amid a slight decline against half of its peers in the G10 currencies and the stronger US dollar in general, but it performed better last Friday when another decline in the Fed’s preferred measure of inflation enabled the price of the pound to remain above the recently recovered 1.26 level.
The drop announced last Friday in core PCE inflation for May was a surprise to the downside of economists' expectations and eased pressure on the Federal Reserve to continue raising US interest rates, dampening appetite for the US dollar and supporting other currencies along the way including the British pound.
Commenting on this, Tom Kenny, chief economist at ANZ, said that: “Incoming activity data continues to suggest that the economy is growing at an above-trend pace. Pressure on inflation is likely to continue given limited spare capacity.”
“The labor market data will be in focus this week. The Fed will look for easing in the US non-farm payrolls and the opening of the jobs to unemployment rate,” he added.
In general, financial market pricing still indicates a high probability of raising the US interest rate again in the coming months, reaching between 5.25% and 5.5%. However, this implied forecast is likely to be sensitive to the details and impacts of important US economic data due this week including the May monthly employment survey and labor force turnover on Thursday, and the June non-farm payrolls report on Friday.
Meanwhile, after the Bureau of Economic Analysis raised its previous estimate of US first-quarter GDP last Thursday, this week's Institute for Supply Management (ISM) surveys of activity in manufacturing and services in June may also be relevant to the dollar.
At the same time, the GBP/USD may benefit if these minutes or the release of minutes from last month's Federal Reserve meeting on Wednesday push the possibility of additional US rate hikes out of sight, but it is also likely that the pound will react to the Bank of England governor's comments.
“Over the coming months, we expect activity data in Britain to weaken further, particularly household spending. And there's still a significant share of very low fixed-rate mortgages set to roll over over the next year or so to higher variable or fixed rates," he said.
He added that “The resulting large increase in household mortgage payments will burden spending. There is negative support for GBP/USD at 1.2378 (100-day moving average), although it is unlikely to be reached this week.”
There are no major economic figures due in Britain this week but BoE Governor Bailey is due to take part in a panel discussion at the economic meetings in Aix-en-Provence on Friday and the risk is that his comments have a dampening effect on sterling's appetite. The Governor did indeed suggest in a panel discussion at the ECB's Forum on Global Central Banks last week that financial markets may be wrong to expect interest rates to rise further as a result of the recent increase in wage growth and the rebound in core inflation announced in the UK last month.
"The cumulative data, although it is specific to the labor market and the inflation release that we had - which showed us clear signs of persistence - led us to conclude that we had to make a really strong move at that point," the Fed's governor said. This came when he was asked about the decision last week in a panel discussion with the heads of other central banks.
GBP/USD Technical Outlook
According to the performance on the daily chart below, the bearish pressures are still stronger on the performance of the price of the GBP/USD currency pair, and breaking the support level at 1.2600 will provide more strength for more bear control over the trend. straight. It is enough to push the technical indicators toward strong oversold levels.
On the other hand, over the same period of time, the bulls will not control the trend again without moving above the 1.2800 resistance again. I expect a quiet trading session in light of the US market holiday.
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