GBP/USD Forecast: Pound could rebound on weak US data

GBP/USD has steadied above 1.1800 during the European session.
A weaker-than-expected US Retail Sales data could weigh on the dollar.
Investors reassess the Fed's rate outlook on Governor Waller's dovish comments.

Eren Sengezer FXStreet

GBP/USD has recovered and steadied above 1.1800 early Friday after having suffered heavy losses on Thursday. Investors await key macroeconomic data releases from the US and the dollar could face selling pressure in case the probability of a 100 basis points (bps) rate hike in July continues to decline.

The dollar rally that was triggered by hot US inflation data on Wednesday stayed intact on Thursday and the US Dollar Index (DXY) reached its strongest level in nearly 20 years at 109.29 during the American session.

After Federal Reserve Governor Christopher Waller said that markets may have gotten ahead of themselves by pricing a 100 basis points rate hike in July, however, the DXY erased a large portion of its daily gains. Regarding the July rate decision, Waller said he was in favour of a 75 bps increase but noted that he could lean toward a bigger hike if retail sales and housing data come in stronger than expected.

Retail Sales in the US are expected to increase by 0.8% on a monthly basis in June following May's 0.3% contraction. If this data comes in stronger than expected, it could help the dollar regather its strength. Following Waller's remarks, the probability of a 100 bps rate hike in July fell toward 50% from 90%. Hence, the DXY is likely to gain traction in case the sales data ramp up the 100 bps rate hike bets.

Later in the session, the University of Michigan (UOM) will release its Consumer Sentiment Survey for early July. Rather than the headline Consumer Confidence Index, the long-term inflation expectations component of the survey should trigger a significant market reaction. Following the decision to hike the policy rate by 75 basis points in June, FOMC Chairman Jerome Powell said rising long-term inflation expectations in the UOM's survey were one of the factors behind the aggressive rate increase. In June's final version, the 5-10 year ahead inflation expectation stood at 3.1% and the dollar rally could pick up steam if there is an uptick in that figure. On the other hand, the greenback could face additional selling pressure ahead of the weekend on a soft print.

GBP/USD Technical Analysis

GBP/USD continues to trade within the descending regression channel coming from late June and the Relative Strength Index (RSI) indicator on the four-hour chart stays below 50, suggesting that the bearish bias stays intact.

On the downside, 1.1800 (psychological level, static level) forms first support before 1.1760 (static level from March 2020, July 14 low) and 1.1700 (psychological level).

Resistances are located at 1.1850 (upper limit of the descending channel, 20-period SMA), 1.1900 (psychological level) and 1.1930 (50-period SMA).

Premium

You have reached your limit of 3 free articles for this month.

Start your subscription and get access to all our original articles.

Subscribe to Premium Sign In

Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.