GBP/USD firms after UK CPI fails to drop further in June

The bullish run in GBP/USD remains solid as official data released on Wednesday morning confirmed UK inflation remained unchanged at 2% in June. The release was actually a little stronger than anticipated as markets had hoped CPI would have dropped further to 1.9%, which would have been the lowest level since April 2021. Core inflation, which excludes volatile prices like food and energy, was also unchanged in June at 3.5%, despite analyst forecasts of a drop to 3.4%.

The big question now is whether this data allows the Bank of England to cut rates in August. Current pricing in markets is leaning towards no rate cut after the data release, with a 64% chance of ‘no change’. Services inflation, which has remained sticky despite the disinflation process, is likely one of the main reasons keeping the central bank from cutting rates.

On Thursday morning we’ll get the latest employment data from the UK, which includes wage data from May. Whilst the data is slightly outdated it can give markets a great sense of direction on where the BoE may be heading with its policy over the coming months. So far, growth in wages has been resilient which has put upward pressure on inflation, so increased focus has been placed on the data in recent months. In April, average earnings excluding bonuses remained unchanged at 6%, as did the figure that includes bonuses at 5.9% despite market hopes for a drop to 5.7%. Forecasts show analysts expect this data to have softened slightly in May, which could give traders a little more hope for a rate cut in August.

For now, the path of least resistance in GBP/USD remains higher. The pair has managed to break the 1.30 mark for the first time in a year, which consolidates the bullish momentum further. Both Monday and Tuesday saw attempted pullbacks from sellers but the fact the direction was unchanged suggests there is still ample buying interest to continue moving higher. Despite the RSI being in overbought territory, there is still room to go before it reaches the peak set back in July last year, which was the last time the pair was trading above 1.30. the next target for buyers could be 1.3040 before focusing on moving higher towards the 1.31 mark, at which point resistance may start to become more evident.

EUR/USD daily chart

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