GBP/USD Forecast: softer UK inflation sends Pound lower

Broad dollar's weakness sent the GBP/USD pair up to 1.3125, its highest since last September, but the pair retreated sharply after a surprise retreat in UK inflation, which makes less likely a rate hike in the upcoming months. The consumer price index remained flat in June, rising by 2.6% from a year earlier, well below market's expectations and previous of 2.9%. The retail price index also rose by less than expected in the month, while inflation at factory levels rose by more than expected, but below previous. Despite inflation is still running ahead of wages, the news somehow supported BOE's stance that  inflation will slowly fall back in place, and that rate hikes won't be needed.

The pair retreated down to 1.3015, trading a few pips above this last and with scope to decline further, particularly on a break below the 1.3000 psychological barrier, given that in the 4 hours chart, the price is currently breaking below its 20 SMA, while technical indicators turned sharply lower within positive territory, still above their mid-lines.

Declines are expected to remain moderate, given the absence of dollar's demand, but a downward acceleration below 1.3000 should lead to a test of the 1.2960 region, while below this last, the slide can extend down to 1.2920. The immediate resistance comes at 1.3060, Monday's low, with a recovery above it favoring further gains towards the 1.3110/20 region.

View live chart of the GBP/USD

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