• UK service inflation rose by 5.6, above expectations for a 5.5% increase.

• The Bank of England will likely keep rates unchanged this week.

• US sales increased by 0.1% when estimates had shown a 0.2% decline in August.

The GBP/USD forecast points to bullish optimism after UK services inflation data came in higher than expected. Meanwhile, the dollar was steady after rebounding in the previous session due to better-than-expected retail sales data.

UK inflation held steady at 2.2% in August, meeting forecasts. However, market participants focused on service inflation, which rose by 5.6%, above expectations for a 5.5% increase. The Bank of England has remained cautious despite inflation reaching its target. Policymakers have been monitoring stubborn service price pressures. The report increased the likelihood that the Bank of England will keep rates unchanged this week.

A separate report revealed that UK house prices increased by a slower 2.2% in July. Nevertheless, it was the fifth month in a row that prices increased. A pause by the BoE and a significant rate cut in the US could keep sterling on an upward trajectory.

Notably, the dollar recovered on Tuesday after US retail sales jumped. Sales increased by 0.1% when estimates had shown a 0.2% decline in August. The increase showed that consumer spending remained strong, pointing to a resilient economy. Although it supported a smaller Fed rate cut, it was not enough to significantly change current expectations. Market participants are pricing a 63% chance of a 50-bps rate cut. Such an outcome could sink the dollar. Moreover, they will focus on messaging for future policy moves.

GBP/USD key events today

• Federal Funds Rate
• FOMC Economic Projections
• FOMC Statement
• FOMC Press Conference

GBP/USD technical forecast: Bulls make another attempt at 1.3200

On the technical side, the GBP/USD price is breaking above the 1.3200 resistance level. Previously, the price had briefly breached this level before pulling back. However, there was a surge in bullish momentum before the price reached the 30-SMA.

However, to confirm a break above 1.3200, the price must detach from this level to make new highs. In such a case, bulls would likely revisit the 1.3301 level. The bullish trend will continue if the price stays above the 30-SMA with the RSI above 50.

https://www.forexcrunch.com/blog/2024/09/18/gbp-usd-forecast-uk-services-inflation-beat-expectations/