GBPUSD remains below 1.3800 as the strengthening greenback outweighs the impact of the UK inflation data.
Despite the lower-than-expected US inflation data, the Delta variant has heightened the US dollar’s safe-haven appeal.
Focus is on the FOMC meeting minutes after Powell pointed at the pulling away of emergency tools.
UK inflation data
GBPUSD is on a corrective rebound even as the mixed UK inflation numbers weigh on the pound. Earlier on Wednesday, the country’s Office of National Statistics, consumer prices rose by 2.0% in July YoY compared to the forecasted 2.3%.
In June, the 2.5% rise was the highest since August 2018. The Bank of England’s inflation target is 2%. With the exclusion of the volatile food and energy components, the core CPI rose by 1.9% on a year-on-year basis. Experts had predicted a reading of 2.2% compared to the prior month’s 2.3%.
Earlier in the week, the positive UK job data failed to yield enough bullish momentum as the US dollar’s safe-haven appeal limited GBPUSD gains. With the inclusion of bonuses, the average earnings index rose by 8.8% in June compared to the forecasted 8.6% and the previous month’s 7.4%.
At the same time, the additional number of employed people in June was at 95,000 MoM. Notably, the figure is higher than the previous 25,000 and the expected 75,000. Subsequently, the country’s unemployment rate has declined from 4.8% in May to 4.7% in July. As the economy recovers from the Covid-19 pandemic, companies are competing for talent, hence the rise in wages and decline in unemployment.
Additional inflation data from the UK is scheduled for release on Friday in the form of retail sales. Analysts expect it to remain unchanged at 0.5% MoM. On a year-on-year basis, the expected rise of 6.4% is lower than the prior month’s 9.7%. Notably, the expected employment and inflation data will act as a litmus test to BoE’s stand that the current rise in inflation is transitory.
GBPUSD will also react to the FOMC meeting minutes scheduled for release on Wednesday. The recent US inflation data have eased fears over the overheating of the economy. On Tuesday, data from the US Bureau of Labor Statistics showed that retail sales dropped by 1.1% in July MoM after rising by 0.7% in June.
In the previous week, the release of US CPI numbers was also lower than expected. Even with the eased inflation fears, the US dollar remains on an uptrend as a result of its heightened safe-haven appeal. With the Delta variant triggering concerns over the stability of the global economy, the dollar index is trading steadily above the $93 resistance-turned-support level for the second consecutive session.
Investors are keen on whether the Fed minutes will ease the dollar’s weakness and the resultant impact on GBPUSD. In his speech on Tuesday, Jerome Powell indicated that the central bank is in the process of putting away its emergency tools. Notably, a hawkish tone from FOMC will likely boost the greenback while acting as a bearish catalyst for the currency pair.
GBPUSD technical outlook
GBPUSD has eased after being on a downtrend over the past two sessions. On Monday, the currency pair reached an intraday high of 1.3878 before plunging to a one-month low of 1.3724 on Tuesday. Notably, the drop pushed the pair to the oversold zone with an RSI of 20.
Even after the subsequent corrective rebound, the price has remained below the crucial support-turned-resistance level of 1.3800. At the time of writing, it was up by 0.14% at 1.3762. On a two-hour chart, it is trading below the 25 and 50-day Exponential Moving Averages with an RSI of 39.
In the near term, I expect the pair to rise further to 1.3783, which is along with the 25-day EMA. Additional buying pressure may push the price higher to 1.3807, along the 50-day EMA, before pulling back. On the flip side, a move below Tuesday’s low of 1.3724 will place the support at the psychological level of 1.3700.