GBP/USD pars losses but ends week lower

• GBP/USD was down for a fourth consecutive week.
• Despite the early losses, Cable made up some ground late in the week.
• Next week: UK and US CPI inflation updates.

GBP/USD ended a fourth consecutive week in the red, closing down around four-tenths of a percent, despite a late-week recovery from lows below the 1.2700 level. A weak presentation of the economic calendar from the UK gave sterling traders a breather after the Bank of England (BoE) unleashed a broad pound pound strike. Market flows have since rebalanced, with investors now turning to next week’s consumer price index (CPI) inflation readings due on both sides of the Atlantic.

Next week’s forecast: US CPI and Fed easing should drive sentiment

Market focus is on the likelihood of a rate cut by the Federal Reserve in September. Rate markets have fully factored in the start of a rate-cutting cycle when the Federal Open Market Committee (FOMC) meets on September 18. However, expectations for an initial double cut of 50 basis points eased slightly from nearly 70% earlier this week. . According to CME’s FedWatch tool, rate traders estimate a 53.5% chance of a 50 bps cut in September, with two additional 25 basis point cuts projected for the rest of 2024.

Next week, investors will have fresh inflation data to look out for, with US Producer Price Index (PPI) and Consumer Price Index (CPI) inflation scheduled for Tuesday and Wednesday, respectively. US retail sales and an update from the University of Michigan’s Consumer Sentiment Survey Index are also expected next week. Both core CPI inflation and headline CPI inflation are currently around 3% year-on-year, and investors will be looking for further easing in headline numbers to support the case for Fed rate cuts.

UK CPI inflation is expected to rise to 2.3% year-on-year in July from 2.0% previously, while core CPI inflation numbers are forecast to fall to 3.4% from 3 .5%. UK Gross Domestic Product (GDP) growth figures are also expected at the end of next week, with UK Q2 GDP expected to fall to 0.6% from 0.7% previously.

GBP/USD Price Forecast

Cable continues to challenge the 200-day exponential moving average (EMA) to the downside at 1.2649, but bidders have stepped up so far to prevent bids from falling closer to the 1.2600 hand. However, the bullish momentum has evaporated as GBP/USD remains down more than 2% from 12-month highs just above 1.3000 set in July.

GBP/USD Daily Chart