GBP/USD retreats on PCE data

The GBP/USD pair is about to post back-to-back weekly gains, up by 0.94%. The Fed’s favorite inflation gauge has eased from above the 5% threshold, showing signs that elevated prices could be peaking soon as the US Dollar Index bounces off weekly lows and grinds higher by 0.10%, sitting at 101.850.

GBP/USD Price Forecast: If bulls fail to reclaim 1.2700, expect selling pressure to mount and send the pair towards a YTD low re-test. The Sterling firmly advances during the last week’s trading day, some 0.45% after the Commerce Department reported that the Fed’s preferred inflation gauge, the Core Personal Consumption Expenditure (PCE), rose to 4.9%, in line with expectations, but lower than 5.2% in March. At 1.2614, the GBP/USD keeps extending its gains during the North American session.

Before Wall Street opened, additional data was revealed. Consumer spending rose 0.9% last month and beat estimations as consumers boosted purchases of goods and services, a sign that could underpin US economic growth in the Q2 amid increasing worries of a recession.

Global equities reflect a positive mood, climbing on Friday. Investors begin to shrug off worries that inflation will keep rising. Also, the pullback in core inflation could deter the Fed from hiking rates as aggressively as previously priced in by market players, which lifted the 10-year benchmark note to its YTD high at 3.20%.

Analyst of ING wrote in a note that the inflation reading is encouraging, though reiterated that bringing it back to its target will take a while.

Three conditions need to be met so that inflation could drop meaningfully quickly. Firstly, an improved geopolitical background to get energy as well as fuel prices lower, this is currently improbable because of the developments in Ukraine. Secondly, an improved supply chain environment, which also seems improbable on China’s zero-Covid policy and the potential for strike action at US ports. Thirdly, there should be a remarkable surge in labour supply to alleviate surging labour costs, which again does not seem likely in the near future.

UK’s Prime Minister Boris Johnson commented that the UK could avoid a recession in the months ahead, despite UK’s last inflation report, popping up 9% at forty years high. Even the Bank of England is expecting a contraction in growth late in the year and a prolonged stagnation scenario.

GBP/USD Price Forecast: Technical outlook

Technically; according to daily chart perspective, the GBP/USD remains downward biased. During the day, the major failed to break above the May 4 daily high at 1.2638 and pulled back towards 1.2610s, well below the daily moving averages (DMAs). However, the RSI shows some signs of turning bullish, but the GBP/USD bulls need to reclaim 1.2700.to shift the bias to neutral-upwards.

Failure to the above-mentioned would keep the pair vulnerable, sending the pair towards the May 20 daily low at 1.2436, followed by the May 17 lows at 1.2315, and the YTD low at 1.2155.