GBP/USD, USD/JPY Forecast: Two trades to watch

GBP/USD jumps after hotter-than-expected CPI data

• UK CPI cools to 2.3% vs 2.1% expected
• The data eliminates the chances of a June rate cut
• FOMC minutes are due later
• GBP/USD rises towards 1.28

GBP/USD has jumped higher following hotter-than-expected UK inflation data and ahead of the minutes of the May FOMC.

UK CPI cooled to 2.3%, down from 3.2% in March to its lowest level since the summer of 2021. However, this was above the 2.1% forecast. Meanwhile, service sector inflation, which tracks domestic demand, remained sticky at 5.9%, down only slightly from 6% and well above the 5.5% forecast. Strong wage growth keeps service sector inflation sticky, an area that the BoE has highlighted as a hurdle to cutting rates.

Following the data, the market has pared back June rate cut bets, with August now a likely staying date. The first-rate cut is now not fully priced until November.

Attention now turns to the minutes from the May FOMC meeting, which will reveal the Fed’s views on inflation. The minutes come as several Fed officials have warned that rates need to stay high for longer to bring inflation to 2%.

GBP/USD forecast – technical analysis

After breaking out of the falling channel, GBP/USD has risen above the 200 SMA and above 1.27 as it heads towards 1.28, the round number. Should bulls extend gains above here, 1.2890, the 2024 high comes into focus.

On the downside, immediate support can be seen at 1.27. A break below here would bring 1.2630, the 100 DMA, and the May 3 high into focus before exposing the 200 DMA at 1.2545.

USD/JPY rises ahead of FOMC minutes

• Fed speakers support high rates for longer
• FOMC minutes are due later
• USD/JPY rises towards 157.00

USD/JPY is heading higher as the market digests the latest comments from Federal Reserve officials and ahead of the release of the FOMC minutes.

The minutes are from the May meeting, at which the Fed left rates unchanged. In the press conference following, Fed Chair Powell said that another rate hike this cycle was unlikely. The minutes will give a deeper understanding of the Fed's view of inflationary risks. They come after several Federal Reserve officials have warned that interest rates need to stay high for longer to tame inflation.

Fed governor Christopher Waller said yesterday that he would need to see several more months of good inflation data before being comfortable with cutting rates, and Cleveland Fed president Loretta Mester echoed a similar message.

Despite US inflation cooling by more than expected last week, these views from Fed officials are not new, explaining the dollar's muted response against its major peers. However, USD/JPY extends gains on Fed – BoJ divergence.

Concerns of another intervention by Tokyo have traders on alert after the Japanese authorities were suspected of intervening earlier this month.

Looking ahead, Japanese PMI data is due out on Thursday.

USD/JPY forecast – technical analysis

USD/JPY is being guided higher by the 50 SMA. The price rebounded from support at 153.50 rising above 155.00 as it look towards 157.50 the rising trendline resistance towards 158.00 the May high. Above here 160.00 the 2024 high comes into focus.

On the downside, immediate support is at 155.000. A break below here opens the door to 153.50 ahead of 152.00, the March high.