GBP/USD Surges After UK Inflation Data

The British Pound (GBP) surged in value during Wednesday’s trading session in New York. This jump came after the UK’s statistics office (ONS) released inflation data for June that was higher than expected. The report showed that overall inflation and inflation excluding certain items (core inflation) both went up in June to 2.0% and 3.5%, respectively. Inflation in the service sector, which has been a major reason why the Bank of England (BoE) hasn’t raised interest rates, remained high at 5.7%. The increase in inflation from May to June was smaller than anticipated, at 0.1%.

Because inflation remains high, especially in the service sector, BoE officials are unlikely to loosen their monetary policy stance any time soon. Policymakers have been worried about inflation staying high in the service sector.

The higher-than-expected UK inflation data also reduces the chances that the BoE will start cutting interest rates at its meeting in August. The next important event for the Pound Sterling will be the release of employment data for the three months ending in May. Economists predict that the unemployment rate will stay the same at 4.4%. They also expect wage growth (including and excluding bonuses) to have slowed down to 5.7%. If wage growth shows signs of slowing, it would support the idea that the BoE will cut interest rates.

The Pound Sterling has climbed sharply, breached the 1.3000 figure for the first time since July 19, 2023, and exchanged hands at 1.3020 above its opening price by 0.36%, following a mixed inflation report in the UK. At the time of writing, the pair is 0.25% up trading at 1.3005.

The GBP/USD pair breaches 1.3000 for the first time since July 2023. RSI indicates strong bullish momentum, with potential targets at 1.3050 and 1.3100.

Key supports at 1.2894 and 1.2860 if a pullback occurs below the psychological 1.3000 level. Technically; the GBP/USD uptrend is set to continue if Federal Reserve officials’ rhetoric turns more dovish as policymakers eye the first rate cut. Bullish momentum accelerated, as depicted by the Relative Strength Index (RSI), which, despite being overbought above 70, due to the trend’s strength, most traders see the 80 level as the most extreme condition.

If GBP/USD clears the psychological figure of 1.3050, buyers could target the 1.3100 mark. They can further challenge key supply zones overhead, with the July 18, 2023, peak at 1.3125, ahead of last year’s high at 1.3142.

On the other hand, a pullback below 1.3000 can exacerbate a deeper correction, with traders eyeing the latest cycle high, which turned support at 1.2894, the March 8 daily high. The further downside lies underneath, with the following demand zone at 1.2860 before diving to March’s 21 high, at 1.2803.