• UK inflation fell from 3.2% to 2.3% in April.
• There is a 50% chance the BoE will cut rates in June.
• Investors await the FOMC meeting minutes.

The GBP/USD price analysis shows increased bullish momentum as the pound soars on a smaller-than-expected decline in inflation. Meanwhile, investors eagerly awaited the FOMC policy meeting minutes.

On Wednesday, data from the UK revealed a sharp decline in headline inflation from 3.2% to 2.3% due to decreased household energy prices. However, economists had expected a more significant drop to 2.1%, just slightly above the Bank of England’s target. Therefore, there was a slight drop in rate cut expectations.

Previously, markets were pricing in a 55% chance that the BoE would implement the first rate cut in June. After the report, this figure fell to 50%, and the pound rallied. Furthermore, a closer look at the inflation report revealed a bigger-than-expected increase in services inflation, complicating the outlook for BoE rate cuts.

Meanwhile, the dollar held steady as policymakers pushed back expectations for Fed rate cuts. The recent drop in inflation has caused a lot of excitement in the market about US interest rates. However, calm has returned as policymakers have maintained a cautious tone. Most have warned that it is too early to conclude that the downtrend in price increases is back. Nevertheless, there is more confidence now that the Fed’s next move will be a rate cut. The only uncertainty is the timing of the first cut. The FOMC meeting minutes later today might give more clues on this outlook.

GBP/USD key events today

• FOMC Meeting Minutes

GBP/USD technical price analysis: Price gets overbought below 1.2750

On the technical side, the GBP/USD price has made a sharp, bullish move to the 1.2750 resistance level. At the same time, the price hit the 1.618 Fib extension level, showing the bullish bias is strong. Currently, it sits above the 30-SMA with the RSI in the overbought region, showing bulls have pushed the price to the limit.

Therefore, the uptrend might pause because of the strong resistance above. Moreover, the RSI is showing some weakness in the recent surge as it has made a slight bearish divergence. If it plays out, the price will pull back to retest the 30-SMA or the 1.2601 support. On the other hand, if bulls regain momentum, GBP/USD might breach the 1.2750 barrier.

https://www.forexcrunch.com/blog/2024/05/22/gbp-usd-price-analysis-above-forecast-cpi-boosts-pound/