The GBP/USD fell over 1% last week, with most of those losses coming in on Friday. Sentiment turned bearish towards the pound as weak UK data raised the probability of further BOE rate cuts this year, with the next one in August being almost a foregone conclusion. Meanwhile, investors warmed towards the dollar on expectations that the US will impose higher tariff rates on several large trading partners when the extended deadline of August 1 passes. On Friday, Donald Trump threatened a 35% tariff on some Canadian goods and raised the prospect of increasing levies on 0most other countries. He followed that up with threats of a 30% tariff rate for Mexico and the European Union, if better terms are not negotiated before the August 1 deadline. With inflation data to come from both the UK and US this week, the GBP/USD outlook will be put for a big test.
Dollar finds much needed support
The US dollar gained ground last week, underpinned in part by unexpectedly strong economic data, but more to the point, because of concerns about inflation. President Trump’s threats of higher tariffs and expansive fiscal plans—described as “big, beautiful” spending and tax initiatives – are among factors that increase the risk of more persistent inflation. While the Federal Reserve is still widely expected to initiate rate cuts in September, the rising inflationary pressures could slow the pace of easing thereafter. This shift would likely provide support for the dollar so long as investors don't lose trust in US monetary policy.
Week ahead: CPI from both UK and US could set tone for GBP/USD outlook
US CPI
Tuesday, July 15
So far, the inflationary impact of Trump's tariffs, his spending plans and upcoming tax cuts have not been shown in hard data. But it’s possible that inflation may stick around longer than markets anticipate, delaying or limiting rate cuts.
UK CPI
Wednesday, July 16
Friday’s fresh data dump showed the UK economy contracted for the second consecutive month as the slump in manufacturing continued. Will the weakness in the economy and recent GBP strength reduce imported inflation? If CPI shows weakness, then the market will start to price in more rate cuts towards the end of the year.
US retail sales
Thursday, July 17
Recent data suggests the US economy is holding its own relatively well considering the trade war uncertainty. But are consumers splashing the cash? Core retail sales fell 0.3% m/m in May, but that drop is expected to have been made good in June.
GBP/USD outlook: Technical levels and factors to watch
Source: TradingView.com
The GBP/USD outlook from a technical point of view took a hit after the cable broke a few support levels including 1.3630ish and 1.3530-1.3550 range. These levels were formerly support or resistance and will now be the most important short term hurdles to watch. On the downside, the September high of 1.3434 is the next big level followed by the 1.34 handle. This is where a bullish trend line comes into play, making it a key technical zone.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
