GBP/USD forecast: Currency Pair of the Week – July 8, 2024

Following the publication of a mixed-bag US non-farm payrolls report on Friday, the US dollar dropped, sending the GBP/USD above the 1.28 handle to end the week solidly in the black. The move has followed through to the start of this week with the cable on the rise ahead of a busy week. The upcoming release of US inflation data is likely to alter the odds of a September rate cut in the direction of the surprise, putting the GBP/USD forecast into focus. Thus, a clearer trend for the US dollar could emerge this week, after the greenback fell across the board last week. We will also have some UK data to look forward to, while investors continue to monitor Keir Starmer’s progress in his first week as UK Prime Minister.

 

First impressions of new UK PM impress markets

 

Judging by the calm reaction of the pound and the FTSE ever since the handover of the premiership to Labour’s Keir Starmer and resignation of Rishi Sunak, it looks like political stability is the key takeaway point. Of course, a landslide victory was already priced in weeks ago, but the first impressions of Starmer as Prime Minister has undoubtedly pleased his supporters. Starmer has stated that “the work of change begins immediately”, promising to “rebuild” the country amid widespread public frustration with deteriorating public services, the National Health System and social care, and a faltering economy amid the cost-of-living crisis. Let’s see how he plans to make those changes and whether the market will buy it.

 

Key UK data to watch this week: GDP and industrial production

 

Speaking of the economy, we will have the monthly GDP estimate on Thursday in a UK data dump that will provide statistics from May, something Starmer and his Labour party had no say about. In any event, GDP is seen printing 0.2% growth month on month, following a flat April. If GDP or this week’s other UK data beats expectations, and given the calmer reaction to Labour’s victory, the pound could rise further, boosting the GBP/USD forecast.

 

 

 

US data highlights this week: CPI, UoM surveys and Fedspeak

 

The US dollar, meanwhile, will remain in sharp focus this week, with the publication of the latest CPI and PPI measures of inflation, as well as the University of Michigan’s consumer sentiment and inflation expectations surveys, plus several speeches by Fed officials.

 

Friday’s US non-farm jobs report showed payrolls increasing by 206,000, surpassing consensus. However, the previous two months saw significant downward revisions, bringing the three-month average of jobs created to its lowest since January 2021. Moreover, the unemployment rate rose to 4.1% against expectations, while average hourly earnings increased by the slowest annual growth rate since Q2 2021, aiding the Fed's inflation target of 2%.

 

This week, we will have the following key US data and Fed members speaking, in addition to the UK data mentioned earlier, all having the potential to impact the GBP/USD forecast:

 

 

With upcoming CPI and PPI data, a clearer trend for the US dollar could emerge this week, after the greenback fell across the board last week.

 

CPI data could signal return to disinflation, impacting us dollar

 

The latest Consumer Price Index (CPI) data will be released on Thursday, July 11. Following last month’s print of weaker-than-expected rise of 0.2% in monthly core CPI and a flat headline reading, US dollar bears had hoped for a larger USD drop last month. However, the dollar held steady against the yen and euro until weak US economic data last week caused a decline. Another weak CPI print could indicate the disinflation process is back on track, helping move inflation towards normal levels.

 

UoM Consumer Sentiment and Inflation Expectations

 

Friday’s data releases will include the Producer Price Index (PPI) and the University of Michigan’s Inflation Expectations and Consumer Sentiment surveys. The UoM gauge of consumer sentiment has been declining, consistently disappointing expectations. Concurrently, several data points like the ISM manufacturing and services PMIs have been weak. The UoM’s Inflation Expectations survey softened to 3.0% from 3.3%. Further declines in inflation expectations could weaken actual inflation through a weaker wage-price spiral.

 

 

GBP/USD forecast: key levels to watch

Source: TradingView.com

 

The GBP/USD has broken its bearish trendline that had been in place since June 2021, suggesting rates could be on the verge of larger move higher, potentially towards the next psychologically-important level of 1.3000, last July’s high of 1.3142 or even higher. Short-term support is seen around 1.2815/20, marking last week’s high, when the pair formed a large thrust candle. Key support is now seen around the 1.2700  handle, which marks the breakout area. The line in the sand in this technical bullish GBP/USD forecast is last week’s low at 1.2615. A potential move back below this level would more or less invalidate the bullish breakout.

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R