- The UK GDP report showed a smaller-than-expected expansion of 0.1%.
- British Treasury yields fell after a softer-than-expected UK inflation report.
- Underlying US inflation was softer than expected in December.
The GBP/USD outlook shows increasing pressure on the Bank of England to lower borrowing costs amid weak economic growth. Meanwhile, in the US, a soft inflation report has maintained expectations for at least one Fed rate cut this year. Market participants are now watching the retail sales report for more clues on Fed rate cuts.
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The UK released its GDP report on Thursday, showing a 0.1% expansion. However, this was smaller than the forecast of 0.2%. This miss shows weaker-than-expected growth that might pressure the Bank of England to cut interest rates. As a result, the pound eased. However, there was still optimism around the recent drop in UK Treasury yields, which has relieved pressure on the country’s finances. Treasury yields fell after a softer-than-expected UK inflation report.
On the other hand, the US dollar remained weak after data on Wednesday revealed that underlying US inflation was softer than expected. The core CPI increased by 0.2% compared to estimates of 0.3%. Meanwhile, monthly and annual inflation numbers came in line with expectations, keeping Fed rate cut bets intact.
Market focus has now shifted to the upcoming retail sales report, which will show consumer spending in the country. An upbeat report will lower rate-cut bets. Meanwhile, a downbeat report might further weaken the dollar by increasing rate-cut expectations.
GBP/USD key events today
- Core Retail Sales m/m
- Retail Sales m/m
- Unemployment Claims
GBP/USD technical outlook: Trendline resistance capping gains
On the technical side, the GBP/USD price has defined the confines of a new bearish channel. Although GBP/USD has remained in a bearish trend, the slope has shallowed. Initially, the price was trading below the 30-SMA. However, bulls started puncturing the resistance line. Nevertheless, the price continued to make lower highs and lows. Therefore, the downtrend has created a new resistance level slightly above the 30-SMA.
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Currently, the price is bouncing lower from the channel resistance. It trades below the 30-SMA, showing bears are in the lead. At the same time, the RSI is below 50, suggesting solid bearish momentum. Therefore, it may soon retest the 1.2102 support and likely break below for a new low in the downtrend.
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