GBP/USD Pares UK Inflation-Inflicted Losses And Edges Back Above 1.29500s, A Slew Of U.S Data Awaited
Key Takeaways:
📌GBP/USD pair witnessed positive traction on Thursday after extending a corrective pullback from the 1.28678 level
📌Growing bets for a less hawkish Federal Reserve amid optimism of a soft landing continue to undermine the greenback
📌Stubborn U.K. inflation drops further in June to a 15-month low suggesting the Bank of England might be forced to hike less aggressively than initially expected
📌Markets await the release of a slew of key U.S. data for fresh directional impetus
GBP/USD cross extended the corrective pullback from the vicinity of the 1.28678 level touched on Wednesday during the New York trading session and edged higher on Thursday during the Asian session to trade firmly above the 1.29500 mark. The cross looks set to maintain its bid tone amid the prevalent U.S. dollar selling in the European session.
Diminishing odds for more aggressive rate hikes and signs of stability in the financial markets continue to undermine the safe-haven greenback and is seen as a key factor helping cap the downside for the GBP/USD pair. This comes from better-than-expected U.S. consumer and producer inflation data, which raised bets that the Fed's next rate hike later this month could be the last hike before the Fed hits pause on its interest rate-hiking cycle. Moreover, the greenback continues to be weighed down by the prevalent risk-off environment as investors have shied away from risk-perceived assets in favor of traditional safe-haven assets, benefiting the Great British Pound (GBP). 
Additionally, a weaker tone around treasury bond yields continues to undermine the greenback and is seen as another factor helping exert upward pressure on the GBP/USD pair. Further weighing down on the greenback was the fresh batch of disappointing macro data, which showed Housing starts in the U.S. declined by 8% month-over-month to a seasonally adjusted annualized rate of 1.434 million in June 2023, below market expectations of 1.48 million, a U.S. Census Bureau report showed on Wednesday. Separately, Building permits in the United States dropped by 3.7% to a seasonally adjusted annual rate of 1.44 million in June 2023, partially reversing a 5.6% increase in May, according to a preliminary estimate.
Shifting to the U.K. docket, an Office for National Statistics (ONS) report on Wednesday showed headline inflation in the U.K. fell from 8.7% to 7.9% in June, below the consensus forecast of 8.2%, while core inflation (excluding food and energy ) fell from 7.1% to 6.9% in June, below market consensus of 7.1% rise. The immediate implication of the better-than-expected inflation data saw the Great British Pound (GBP) fall significantly by as much as 0.5%/65 pips against the U.S. Dollar (USD) while the U.K. Treasury gilts dipped by more than 3 basis points.
Additionally, the data has, to a greater extent, slashed odds for a 50bps rate hike by the Bank of England (BoE) in its next monetary policy committee meeting, with the Central Bank now expected to be less hawkish in favor of a 25bps rate hike. The U.K. Inflation data report is a relief after several months of back-to-back hot inflation figures in the U.K.
That said, the greenback continues to be supported by firm market expectations that the Fed will maintain a hawkish position during the July FOMC meeting later this month. CME's Fedwatch Tool shows Fed fund traders have priced in a 97.3% chance of a 25bps rate hike during the July FOMC Meeting and an 86.3% chance of the Fed leaving its Fed Funds rate unchanged at 5.25% during its September FOMC meeting. Apart from this, top Fed officials' strong hawkish rhetoric comments in the past few weeks continue to support the greenback and will help limit further gains for the GBP/USD pair. Furthermore, the upbeat University of Michigan Consumer Confidence Index and the New York Empire State Manufacturing Index reports released on Friday and Monday extend support for the greenback. They will help cap the upside for the GBP/USD pair.
As we advance, traders look forward to the U.S. docket featuring the release of the July Philadelphia Fed Manufacturing Index data, the previous week's Initial Jobless Claims data, and the June Existing Home Sales data.
Technical Outlook: Four-Hours GBP/USD Price Chart
From a technical standpoint, a further increase in buying pressure from the current price level will uplift spot prices to tag the 50-day (red) Exponential Moving Average (EMA) at the 1.29675 level. Further north, the bullish uptick could be extended toward confronting the 61.8% and 50% Fibonacci Retracement Levels at 1.30363 and 1.30020 levels, respectively. If the price pierces these barriers, it will reaffirm the bullish bias, and buying interest could gain further momentum, creating the right conditions for an advance above the 1.30483 resistance level towards the upper limit of the bullish symmetrical triangle chart pattern. A subsequent bullish price breakout above this resistance level will see the GBP/USD cross accelerate its ascent toward the 2023 record high at 1.31427.
On the flip side, if sellers resurface and spark a bearish turnaround, initial support comes at the 1.28688 support level. On further weakness, the focus shifts lower to the lower limit of the bullish symmetrical triangle chart pattern. A convincing move below this support level (bearish price breakout) will pave the way for a drop towards the 1.27962 level route to the technically strong 200-day (yellow) EMA Level at 1.27781. Acceptance below these barricades will reaffirm the bearish thesis and pave the way for aggressive technical selling. In highly bearish cases, the bearish trajectory could then be extended toward the 1.26747 support level and the 1.26076 - 1.25931 demand zone.
