As I write this, the GBP/USD pair has reversed course and is trading around 1.3081 during European hours, struggling to maintain its recent gains. The pound’s inability to hold above the key 1.3100 level follows the release of disappointing economic data from the UK, which has weighed heavily on Sterling ahead of the critical US Consumer Price Index (CPI) report.
The UK economy stagnated in July, showing no growth, while Industrial Production unexpectedly declined, deepening concerns about the country's economic outlook. This combination of weak data has put additional pressure on the pound, which has struggled to gain traction as economic challenges mount.
The market's focus now shifts to the US CPI report, with traders eagerly awaiting fresh clues on the Federal Reserve’s monetary policy path. A stronger-than-expected CPI print could bolster the US dollar, further pushing the GBP/USD pair lower as it highlights inflationary pressures that might force the Fed to maintain or even increase its hawkish stance on interest rates.
From a technical perspective, the GBP/USD pair recently touched a key Supply area, triggering a reversal that continues to unfold. The pair has struggled to regain its footing since, and with the US CPI looming, there’s a risk that a positive outlook for the USD could extend the pound’s losses.
A stronger US dollar in the wake of the CPI report could intensify the selling pressure on GBP/USD, particularly as the pair already shows signs of bearish momentum following the rejection from the supply zone. In the event of a bullish CPI surprise, the GBP may face further downside, potentially breaking through the 1.3050 support zone as the dollar strengthens across the board.
In summary, GBP/USD is under pressure following dismal UK economic data, and the US CPI report could dictate the pair's next move. From a technical standpoint, the rejection from the supply zone points to further downside risk, with the US dollar potentially driving the pair lower if inflationary pressures in the US remain elevated. Traders should remain cautious as the release of the CPI report could act as a significant catalyst for the next major move in GBP/USD.
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