At the start of this week’s trading, the GBP/USD price is hovering around 1.2685 as the US dollar’s gains have slowed. This marks a slight recovery from last week’s close of 1.2644, which was near its lowest levels in six weeks. Investors are closely monitoring new economic data and the political landscape in Britain.
Recent economic reports show that the British economy grew by 0.7% in the first quarter, slightly higher than the initial estimate of 0.6%, marking the strongest growth in over two years. Additionally, headline inflation in the UK fell to the Bank of England’s target of 2%. Despite this, the Bank of England decided to keep interest rates unchanged, sparking speculation of a potential rate cut in August.
As the UK heads towards the July 4 elections, polls are predicting a significant victory for the Labour Party led by Keir Starmer and a heavy defeat for the Conservative Party led by Rishi Sunak, who has been in power for 14 years. This suggests a major political shift in Britain.
In contrast, the US is considering a rate cut in September as headline inflation in the country has fallen to a three-year low. Analysts believe that the Federal Reserve may cut US interest rates in September based on this data. The core personal consumption expenditures index in the US rose just 0.083% on a monthly basis in May, leading to a decrease in the annual rate to 2.6%, the lowest in three years.
Chief economist Paul Ashworth at Capital Economics suggests that the return to a disinflationary trend and weakness in real activity could prompt the Fed to cut rates in September. The PCE is a key measure of inflation for consumers and is closely monitored by the Fed when setting interest rates.
Technical forecasts for the GBP/USD pair suggest that the downtrend may continue, with support at the 1.2600 level. Without breaking above the 1.2775 and 1.2830 resistance levels, the move may remain within tight ranges. Trading the GBP/USD pair requires careful consideration of upcoming events such as the UK elections and US jobs data.