• Data on Friday revealed a significant drop in UK retail sales.

• Investors still believe the BoE will be slower to cut rates than the ECB and the Fed.

• Data released late last week indicated that US economic activity remains robust.

The GBP/USD forecast hints at a modest bullish trend after a slight rise on Monday, momentarily disrupting the downward momentum from Friday. On Friday, the pound collapsed due to a notable plunge in retail sales, marking the most substantial decline in three years.

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Despite this, the currency finds support in persistent inflation. Moreover, investors believe the Bank of England won’t reduce rates as quickly as the ECB or the Fed. At the moment, market indicators suggest a roughly 50% chance that the BoE will cut rates in May.

Furthermore, the pound has experienced the smallest decline among G10 currencies, while the dollar strengthened broadly throughout the year.

On Friday, data from the UK revealed a surprising decrease in December’s consumer spending. Consequently, it increased recession risks and paused the currency’s recent advances.

The Office for National Statistics attributed a 3.2% contraction in retail sales volumes between December and November to earlier-than-usual Christmas shopping, particularly for food.

Meanwhile, data released late last week indicated that US economic activity remains robust even with interest rates at their highest levels in decades. As a result, there was a revision in market expectations. There are fewer bets on Fed rate cuts starting in March. Traders have shifted their bets, predicting that rate cuts will likely start in May.

GBP/USD key events today

Investors do not expect any key events today. Therefore, the pair might move sideways as markets absorb last week’s releases.

GBP/USD technical forecast: Range-bound between 1.2600 and 1.2800

On the technical side, the GBP/USD price remains trapped between the 1.2800 resistance and the 1.2600 support. Each time the price gets near the 1.2800 resistance, bears take control. Meanwhile, when it gets near the 1.2600, bulls take over.

Notably, the most recent bullish takeover came when the pair touched the 1.2600 support level. At this point, the price made a bullish engulfing candle, engulfing six previous candles. This indicated a surge in bullish momentum. Moreover, the takeover was confirmed when the price broke above the 30-SMA. Bulls are now targeting the 1.2800 range resistance.

https://www.forexcrunch.com/blog/2024/01/22/gbp-usd-forecast-greenbacks-correction-helping-sterling/