• UK inflation fell from 3.4% in February to 3.2% in March.

• Governor Bailey said the decline in inflation aligned with the central bank’s forecasts.

• There is more caution about rate cuts in the US.

Things are looking up in the GBP/USD forecast as the pound stages a recovery following a smaller-than-expected decline in inflation. At the same time, the dollar is falling as investors pause the recent data-driven rally.

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On Wednesday, the UK released data showing higher-than-expected inflation, which led to a decline in rate cut expectations. Inflation fell from 3.4% in February to 3.2% in March. However, economists had expected a bigger decline to 3.1%. As a result, traders scaled back bets for BoE rate cuts. At the moment, they expect the first cut in August or September. Still, there is more clarity on The BoE’s rate cut outlook than the Fed’s.

After the report, Governor Bailey said the decline aligned with the central bank’s forecasts. Moreover, he said inflation was on a downtrend and would reach the central bank’s target.

Meanwhile, Fed policymakers are less certain about the direction of inflation in the US. Recent data has indicated a pause at levels above the central bank’s target. Moreover, the economy remains resilient despite higher interest rates. Therefore, there is more caution about rate cuts in the US.

Additionally, Fed Chair Powell has said that restrictive policy conditions will likely continue for longer. With no clear timing for the first cut, investors are betting on some time in the fourth quarter. Some experts even believe the Fed might not cut in 2024 if inflation remains stubborn.

GBP/USD key events today

• US unemployment claims

GBP/USD technical forecast: Bears weaken at the 1.618 Fib extension level

On the technical side, the GBP/USD price is consolidating between the 30-SMA and the 1.2400 key level. Meanwhile, the bias is bearish because the range is below the 30-SMA, and the RSI is in bearish territory below 50. However, the price has failed to close strongly below the 1.618 Fib extension level.

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Moreover, the RSI has made a bullish divergence, indicating weaker bearish momentum. Consequently, bulls might be preparing to make a big move that would break above the 30-SMA. This would signal a shift in the bias to bullish. Moreover, the price would likely retest the 1.2550 key level. However, if bears regain strength, the price will fall below 1.2400.

https://www.forexcrunch.com/blog/2024/04/18/gbp-usd-forecast-pound-rebounds-on-mild-inflation-drop/