Cable Has A Busy Session Coming Up

The UK is projected to continue seeing economic growth while US inflation is anticipated to remain falling, but will this be enough to spur a rebound in cable?

New Boss, Same Policy

Since late April and throughout the UK general election campaigning period, cable has been largely upbeat. There was some weakness in June, though this appears more correlated to US dollar strength as markets were surprised that the Federal Reserve predicted only one interest rate cut in 2024. However, Fed Chair Jerome Powell's early July comments that inflation was on the right track saw the US dollar weaken. This allowed the British pound to gain traction around the UK election as American traders were away for holidays. Generally, the new UK Labor government's fiscal policies are expected to be broadly similar to the previous administration's but with a focus on increased spending opportunities.

Overall, markets view this as slightly inflationary yet insufficient to alter expectations from the Fed. After the latest BOE policy meeting, economists primarily anticipated the first UK interest rate cut would occur in August, and post-election markets are pricing a 60% chance of that. Better-than-forecast UK GDP figures could give the Bank more leeway to maintain higher interest rates, potentially boosting the British pound further.

What the Data Can Say?

The UK will provide its regular extensive data reports before the market opens on Thursday, with the focus likely on May's monthly GDP growth figure. UK economic expansion is projected to reach 0.1% in May, improving from 0.0% in April. However, this would keep the 3-month average growth rate at 0.7%, clearly indicating the economy is exiting the technical recession from last year despite higher interest rates. UK annual manufacturing production and industrial production are also expected to post positive changes to 0.7% and 0.4%, respectively, from the prior month.

Across the Atlantic, US inflation is anticipated to decline again for the third consecutive month to 3.1%, just above winter levels and down from 3.3% in May. This would essentially erase the brief price uptick seen through spring that unsettled markets. The core rate is projected to remain unchanged at 3.4%, where the Fed places greater emphasis. A relatively small upside surprise of one decimal could shake up markets as it would mark the first rounded increase since March 2018. This may be what is needed to turn cable around.

Cable in Ascending Triangle?

GBPUSD may be forming an ascending triangle pattern. A break above the upper trendline at 1.2861 could lead to further upward momentum, with the next targets being 1.2963 and 1.30. A firm move above these resistance levels may result in prices rising towards 1.3145. Conversely, if the resistance at 1.2861 proves difficult to break, prices could pull back down towards support at 1.2711 and 1.2613. A break below these levels may then expose the lower trendline of the triangle and 1.25 as the next areas of potential support.

Source: SpreadEx / GBPUSD

Key Takeaways

Economic data in the UK and the US may spur a rebound in cable as UK growth is projected to continue and US inflation to fall. Better-than-expected UK figures could give the BOE more leeway to maintain interest rates high for longer, potentially boosting the pound. Key UK monthly GDP, manufacturing, and industrial production figures will be released, with a focus on growth momentum. Meanwhile, a slight upside surprise in the latest US inflation report could shake up markets and influence cable's price action