Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2620.
- Add a stop-loss at 1.2800.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2750 and a take-profit at 1.2850.
- Add a stop-loss at 1.2650.
The GBP/USD exchange rate was flat on Wednesday morning, a day after the US and UK published strong economic data. The pair was trading at 1.2700, a few points above this month’s low of 1.2622.
Strong UK and US data
The UK published strong economic numbers, signaling that the Bank of England (BoE) will likely need to hike interest rates again in September. The data showed that UK wages accelerated in June, pointing to higher inflation.
The average earnings with bonuses rose by 8.2% in June, higher than the previous month’s 7.2%. This increase was higher than the median estimate of 7.3%. Without bonuses, earnings rose by 7.8% during the month.
These record numbers mean that the Bank of England will find it difficult to lower inflation. Market expectations have now priced in another 0.25% rate hike in the upcoming meeting in September.
The Office of National Statistics (ONS) will publish the latest consumer inflation numbers for July. Economists expect the data to show that the headline inflation dropped to 6.8% in July as the core inflation fell from 6.9% to 6.8%. On Tuesday, data showed that food inflation dropped for the fifth straight month.
The GBP/USD’s moves were less pronounced since the US also published strong retail sales data. In a report, the Commerce Department said that the country’s retail sales rose from 0.3% in June to 0.7% in July. Core sales jumped by 1.0% on a MoM basis.
These numbers signal that the American consumer is doing well, which could see the Fed continue hiking rates in September. The pair will react to the latest building permits, housing starts numbers, and FOMC minutes.
GBP/USD forecast
The GBP/USD pair dropped to a low of 1.2618 on Monday. This was an important level since it was also the lowest swing on August 3rd. The pair is consolidating at the 25-period and 50-period moving averages while the Relative Strength Index (RSI) has formed a bullish divergence pattern.
It remains below the descending trendline that connects the highest point on July 28th. Therefore, the pair will likely resume the downward trend, with the next support level being at 1.2618. A move above the resistance at 1.2751 will point to more upside.
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