GBP/USD forecast: UK CPI and wages among key data highlights

The GBP/USD finally found some mild buying interest at the back end the week, bust wasn’t enough to prevent a lower close for the second consecutive week. We had some weaker US jobless claims and consumer sentiment data, helping to reduce the appeal of US dollar as traders’ confidence in the Fed’s ability to cut rates grew further. Not that there were many doubts but after last Friday’s strong US jobs report some traders were understandably forced to rethink their expectations for aggressive cuts. As we look forward to the week ahead, the lack of any major US data could see the greenback give back some of its recent gains, although that is not to say that the GBP/USD forecast will necessarily turn bullish, as the upside potential could be limited. We have some important data from the UK, though.

GBP/USD forecast: CPI and wages among key UK data

UK wages data, which is arguably more important than CPI, comes in on Tuesday. If wages growth falls further from the 3-month annual pace of 4% recorded in the previous month, then this could overshadow the CPI data, which is due on Wednesday. CPI has remained at 2.2% annual pace for the last 4 months, but it is now expected to fall to 1.9% i.e., below the Bank of England’s target. Andrew Bailey has recently said that upcoming UK rate cuts could be more aggressive, although the BoE governor has also acknowledged risks of an oil shock from the Middle East situation. The GBP/USD forecast will turn modestly more bullish should either wages or CPI overshoot expectations.

GBP/USD technical analysis

Source: TradingView.com

The GBP/USD finally found some mild support from the area between 1.3000 to 1.3045. This zone was previously strong resistance in July, before we broke through it in August. The retest from above in September held, leading to an eventual rally to above 1.34 handle where the cable peaked and then started to head lower. So, whether this 1.3000-1.3045 range holds or breaks will have important ramifications on the near term direction of the GBP/USD. A potential break below could lead to a drop to 1.2900 where the cable will face an even stronger support from the rising trend line that has been in place since September 2022. Meanwhile on the upside, the next potential resistance is seen around 1.3150 followed by 1.3250.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

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