The GBPUSD currency pair rose on Tuesday due to a slight decline in the dollar exchange rate. Investors are expecting new economic data from the US and the UK. These indicators will help determine the future monetary policies of these countries.
In December, annual inflation in the UK rose for the first time in 10 months, while retail sales fell by 3.2%, it was the biggest drop since January 2021. There was also a slowdown in wage growth, which indicates a weakening labor market.
Barclays analysts suggest that the Bank of England may maintain a tighter monetary policy for a longer period of time than expected. Market traders expect the BOE to cut rates as early as May with a 60% probability and also look for a 25-basis-point cut by June, according to LSE Group.
New economic data from the UK and the eurozone are to be published this week, including preliminary PMIs for January. According to ING analyst Chris Turner, if the UK PMIs are higher than in the eurozone, it will support the pound.
Meanwhile, the US Federal Reserve officials last week indicated the need for additional inflation data before making a decision on interest rate cuts. They also specified the third quarter as the time period to start the process.
Against this backdrop, traders have revised their expectations for monetary policy easing this year. According to the latest data, the first rate cut in the US, originally expected in March, is now likely to take place in May with an 87% probability. This information is based on LSEG’s interest rate probability app IRPR.
Investors will be keeping a close eye on preliminary estimates of US GDP for the fourth quarter released on Thursday and Personal Consumption Expenditures (PCE) data on Friday.
GBPUSD quotes are testing the resistance of the upward correction channel on the H1 timeframe. The Bulls Power indicator (standard values) is increasing in the positive zone, signaling an upward movement. A price breakout from the correction channel may strengthen this trend.
The short-term outlook for the GBPUSD pair suggests buying.
The target is at the level of 1.2850.
Part of the profit should be taken near the level of 1.2780.
A Stop-loss could be set at the level of 1.2665.
The bullish trend is short-term, so trade volume should not exceed 2% of your balance.