• UK sales dropped by 2.3% in May, beating economists expectations of a 0.4% drop.

• The likelihood of a Bank of England rate cut in June is 10%.

• Investors eagerly await the US core PCE index report.

The GBP/USD outlook shows renewed bullish momentum as the pound trades near a two-month high due to a decline in BoE rate cut expectations. Meanwhile, investors are gearing up for more inflation data from the US.

Data from the UK on Friday showed a mixed picture of the economy, with sales declining and consumer confidence remaining high. Sales in the UK dropped by 2.3% in May, beating economists expectations of a 0.4% drop. This pointed to weaker demand in the economy that would pave the way for rate cuts in the UK.

However, since the inflation report on Wednesday, investors have significantly scaled back expectations for a rate cut. Notably, although inflation fell to 2.3% from 3.2%, economists had expected a more significant drop to 2.1%. As a result, by Friday, the likelihood of a Bank of England rate cut in June was at 10%, down from 50% before the report. Some experts believe markets overreacted to the inflation miss.

Meanwhile, in the US, investors expect the core PCE index report, which will show the state of underlying inflation. Policymakers have remained cautious since the last inflation report, awaiting more evidence that prices are cooling. If the PCE report reveals easing inflation, It might give policymakers more confidence, allowing them to shift to a more dovish stance. On the other hand, a higher-than-expected figure will raise doubts about rate cuts and strengthen the dollar.

GBP/USD key events today

Investors do not expect high-impact events today. Therefore, the price will likely consolidate.

GBP/USD technical outlook: Price retests solid resistance at 1.2750

On the technical side, the GBP/USD price has returned to trade near its recent highs after puncturing the 30-SMA support line. However, the bullish move faces solid resistance from the 1.618 Fib and 1.2750 levels. Moreover, although the bias is bullish, some cracks show a possible looming reversal.

First, bears have become strong enough to break below the 30-SMA, a sign that bulls are losing control. This came after the price made a bearish engulfing candle. Furthermore, the RSI still shows a bearish divergence, indicating weaker bullish momentum. Therefore, if the resistance holds firm, the trend might reverse to retest the 1.2601 support.

https://www.forexcrunch.com/blog/2024/05/27/gbp-usd-outlook-declining-rate-cut-bets-boost-pound/