• The UK economy grew faster than expected in May.

• BoE’s Swati Dhingra called for the central bank to start lowering borrowing costs.

• The likelihood of a Fed rate cut in September rose from 73% to 94%.

The GBP/USD outlook leans bullish as the pound extends last week’s rally after positive UK data. Meanwhile, the dollar remained weak after the US inflation report showed the first decline in four years.

Data on Thursday last week showed that the UK economy grew faster than expected in May. As a result, there was less confidence in a Bank of England rate cut in August. This propelled the pound higher. However, rate-setter Swati Dhingra on Monday called for the central bank to start lowering borrowing costs. According to her, high interest rates have lowered demand in the economy, so there is little risk of a spike in inflation.

However, markets barely reacted as she is a known dove. Notably, Swati has voted for a rate cut in the UK since February. Currently, there is a 50% chance that the BoE will cut rates in August.

Meanwhile, the dollar had a brief recovery on Monday as investors digested news of an attempt at Trump’s life. The incident increased the chances that Trump will win the election in November. A Trump win is bullish for the dollar as Treasuries might increase, boosting demand for the US currency.

However, the move soon reversed as the market focused on the outlook for Fed rate cuts. Data on Thursday showed that inflation fell by 0.1% on a monthly basis. This was an unexpected decline and a big milestone for the US central bank. The softer figures led to a surge in the likelihood of a rate cut in September from 73% to 94%.

GBP/USD key events today

• Empire State Manufacturing Index
• Fed Chair Powell Speaks

GBP/USD technical outlook: RSI points to slight weakness in the new high

On the technical side, the GBP/USD price is approaching the 1.3000 key psychological level that might be a strong barrier. The bullish bias is strong, with the price far over the 30-SMA support. At the same time, the RSI supports solid bullish momentum in the overbought region.

However, the RSI also shows slight easing in bullish momentum from the previous high. The bearish divergence shows exhaustion. If bulls are not strong enough to breach the 1.3000 resistance, the price might pull back to retest the 1.2900 support or the 30-SMA.

https://www.forexcrunch.com/blog/2024/07/15/gbp-usd-outlook-pound-advances-further-on-upbeat-uk-data/