GBP/USD Weekly Forecast: Pound Sterling looks to extend upside as US inflation, UK employment data loom

• The Pound Sterling rebounded firmly, as the US Dollar sagged on policy easing expectations.
• US CPI inflation data to stand out in another event-packed week ahead.
• Looking ahead, GBP/USD buyers can stay hopeful amid a triangle breakout. 

Following a down week, the Pound Sterling (GBP) regained its lost footing against US Dollar (USD), with GBP/USD clinching the highest level in seven months near the 1.2900 mark.

Pound Sterling cheers the US Dollar downfall

The Pound Sterling jumped back into the game, as the US Dollar resumed its downtrend amid an action-packed week. It wasn’t as favorable for the Greenback, in the face of a series of discouraging United States (US) economic data and Federal Reserve Chair Jerome Powell’s dovish comments.

The US ISM said on Tuesday that its Services PMI slipped to 52.6 in February from 53.4 in January. A gauge of prices paid for inputs by businesses fell to 58.6 from an 11-month high of 64.0 in January. Meanwhile, the US private sector added 140,000 jobs in February, an increase from the upwardly revised 111,000 in January while a tad below the expected 150,000 addition, ADP reported on Wednesday. The number of job openings on the last business day of January stood at 8.86 million, the US Bureau of Labor Statistics (BLS) reported in the Job Openings and Labor Turnover Survey (JOLTS). The data also came in slightly below the market forecast of 8.9 million.

On Thursday, Fed Chair Jerome Powell echoed the comments delivered during his testimony before the House Financial Services Committee on Wednesday, stating that rate cuts "can and will begin" this year. Powell added that the Fed policymakers are still not convinced that continued progress toward their 2% inflation objective is “assured,” and that cutting interest rates won’t make sense until they are confident of it.

Markets are currently pricing in about a 75% chance that the Fed could begin easing rates in June, higher than a 65% probability seen at the start of the week, according to the CME Group’s FedWatch Tool.

Amidst sustained US Dollar (USD) weakness, the Pound Sterling also found support from the UK Spring Budget announced by Finance Minister Jeremey Hunt on Wednesday. In the Budget, the British government abolished the current tax system for non-domiciled taxpayers. The government also pledged to extend the energy windfall tax by one year while continuing the household support fund at current levels for six months.

The USD extended its weekly slide on Friday following the February jobs report and GBP/USD advanced to its highest level since early August near 1.2900. The BLS announced that Nonfarm Payrolls rose by 275,000 in February. This print came in higher than the market expectation of 200,000 but the significant downward revision to January’s increase, from 353,000 to 229,000, made it difficult for the USD to find demand. Other details of the data showed that the Unemployment Rate rose to 3.9% from 3.7%, while the annual wage inflation edged lower to 4.3%. 

What to watch out for in the US inflation week ahead

With the US employment data out of the way, GBP/USD traders look forward to Tuesday’s top-tier macro releases from both sides of the Atlantic. Monday’s data docket is a quiet one.

The UK will feature the labor market report on Tuesday. However, the main event risk that day will be the Consumer Price Index (CPI) inflation data from the US, which could significantly affect the markets’ expectations of when the Fed will begin cutting interest rates this year.

On Wednesday, the monthly UK GDP report for January will be published alongside the Industrial and Trade figures, while the US economic calendar remains devoid of any top-tier data.

US Retail Sales report and Producer Price Index will be released on Thursday at the same time as the weekly Jobless Claims data. Meanwhile, on Friday, the preliminary University of Michigan (UoM) Consumer Sentiment and Inflation Expectations data will be closely eyed.

It will be a quiet week in terms of speeches from Fed policymakers as the US central bank enters the “blackout period” on Saturday ahead of the March 19-20 policy meeting.

GBP/USD: Technical Outlook

As observed on the daily chart, GBP/USD remains poised to extend its upside break from the symmetrical triangle.

The pair confirmed the triangle breakout on Wednesday after closing above the falling trend line resistance at 1.2730.

However, Pound Sterling buyers need to clear the December 2023 high of 1.2828 on a weekly closing basis to sustain the uptrend.

Acceptance above that level will initiate a fresh advance toward the 1.2900 level. The next upside barrier for the pair is envisioned at the 1.3000 psychological level, above which the triangle target is measured at 1.3040.
The 14-day Relative Strength Index (RSI) is prodding the overbought territory, suggesting there is more scope for GBP/USD to extend its upbeat momentum.

Adding credence to the bullish potential, the 100-day Simple Moving Average (SMA) is on the verge of crossing the 200-day SMA for the upside. If that crossover materializes, a Bull Cross will be confirmed.
If the uptrend fizzles out, the immediate support is seen at the triangle resistance-turned-support at 1.2726.
The next relevant support is aligned near $1.2680, where the 50-day and 21-day SMAs close in.
If the selling momentum gains traction, the pair could extend the weekly drop to test the 200-day SMA at 1.2576.

However, before that, the triangle support at 1.2618 will be put to the test, exposing the critical 200-day SMA support at 1.2585. At that level, the 100-day SMA coincides.