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GBP/USD forecast: pound sterling outlook as the DXY index spikes

By: Invezz

The GBP/USD pair continued plunging last week as the US dollar index (DXY) surge gained steam. It retreated to 1.2445, its lowest level since November last year as hopes of swift interest rate cuts by the Fed faded.

UK inflation numbers ahead

The GBP/USD pair joined other forex majors in a major dive last week after a series of strong US economic numbers.

A report by the Bureau of Labor Statistics (BLS) revealed that the country created over 300k jobs in March while the unemployment rate fell to 3.8%.

A separate report showed that the country’s inflation continued rising in March. The headline Consumer Price Index (CPI) jumped to 3.5% while the core inflation rose to 3.8%.

There is a likelihood that inflation will continue rising this month as gasoline prices remain at a stubbornly high. The escalation crisis in the Middle East will escalate the situation.

The two numbers are important because jobs and inflation form part of the Fed’s dual mandate. As a result, there is a possibility that the Fed will not implement the rate cuts it had planned in the past meetings.

A look at CME data shows that most economists don’t expect a rate cut to happen in June as they were expecting.

Looking ahead, the GBP/USD pair will react to several important economic numbers from the UK this week. The Office of National Statistics (ONS) will publish the latest jobs numbers on Tuesday.

Most importantly, it will publish the March consumer and producer inflation numbers. Economists believe that the headline UK CPI retreated from 3.4% to 3.1% on a YoY basis. Core inflation is expected to move to 4.1%.

There are signs that UK’s inflation will continue falling as energy prices drop. A report published last week showed that energy prices will fall further than previously expected. Wholesale prices will drop to £82 a megawatt-hour this year, 27% below the expectation.

Therefore, if this trend continues, there is a likelihood that the Bank of England will start cutting interest rates earlier than the Federal Reserve.

GBP/USD technical analysisgbp/usd

GBP/USD chart by TradingView

The GBP to USD pair formed a double-top pattern around the 1.2830 level between January and March. It has now crashed below the neckline of this pattern at 1.2520, its lowest swing on February 5th.

Further, the pair has moved below the 50-day moving average and the Ichimoku cloud indicator. The Relative Strength Index (RSI) is nearing the oversold level at 30. Therefore, the outlook for the pair is extremely bearish, which could see it crash to the support at 1.2300.

The post GBP/USD forecast: pound sterling outlook as the DXY index spikes appeared first on Invezz

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