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GBP/USD Steadies After Hotter-than-expected Inflation

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  • UK CPI rises 3.6% YoY from 3.4%
  • UK jobs data tomorrow could be more important
  • GBP/USD spikes higher but remains below the rising trendline

has steadied after hotter-than-expected while the pair has reached a 3-month high as Fed bets are pared.

The pound is rising after UK was hotter than expected, rising to 3.6% YoY in June, its highest level since early 2024 and up from 3.4% in May. Economists had expected inflation to rise to 3.5%.

The data has seen traders raising Bank of England expectations, with the market now pricing in an 80% chance of a 25 basis point cut in August and 49 basis points worth of cuts across the rest of this year, down from 53 basis points ahead of the reading.

Inflation is running well ahead of the central bank’s 2% target; however, this is largely due to the rise in the energy price cap, which is expected to fade over the coming months.

Attention is turning to UK jobs data tomorrow, which policymakers are seeing as more important. Recent speeches from Bank of England policymakers, including Governor Andrew Bailey, have emphasized concerns over job market weakness as more important than a temporary spike in inflation. Bailey warned that further weakness in the jobs market could see the central bank cut interest rates more aggressively. As a result, today’s spike above 1.34 could be short-lived.

The has paused its recent recovery today, but remains supported after yesterday’s US data saw the market reining in expectations for a . rose 0.3% MoM, marking the largest monthly increase since January, taking the year-on-year to rise to 2.7%.

However, is 0.2% MoM, undershooting the median forecast for a fifth straight month. Following the data, the market has raised expectations for a Fed rate cut, with Fed funds pricing in just a 50% probability of a rate cut in September, down from 54% before the data was released.

US inflation and Fed speakers will be in focus today.

GBP/USD Forecast- Technical Analysis

GBP/USD has found support at 1.3375, having fallen from its 3.5-year high of 1.3790 and taken out several key support levels that had previously turned into resistance at 1.36, 1.35, and 1.3435, the September 2024 high, as well as rising trendline support.

Sellers will need to break below 1.3375 to create a lower low and extend he selloff towards 1.3250, the May low.

Any recovery would need to rise above 1.3450 and 1.35. A rise above 1.36 would create a more constructive outlook.

GBP/USD-Daily Chart

USD/JPY Rises to a 3-Month High as Fed Bets Are Pared

  • USD CPI rises to 2.7% YoY, lowering Fed rate cut expectations
  • US PPI & Fed speakers are in focus
  • USD/JPY rises to a 3-month high

USD/JPY has risen to its highest level since early April, as the US dollar gains strength following yesterday’s inflation reports and reduced expectations for imminent Fed rate cuts.

Yesterday, the US rose in line with expectations to 2.7% from 2.4%, while rose to 2.9% from 2.8%. The data suggest early signs of firms passing on higher costs due to Trump’s tariffs to consumers, adding inflationary pressures as the Fed warned was likely to happen.

The data will keep the Fed on the sidelines until it sees whether this is a one-off hit to inflation or a more persistent increase.

Today, attention will be on US inflation, which is expected to ease to 2.5% from 2.6%, according to Fed speakers, who I would say are under the spotlight.

Meanwhile, the yen has weakened despite an improvement in sentiment among Japanese manufacturers in July, thanks to a rebound in the semiconductor sector. However, concerns persist more broadly over the potential impact of U.S. trade tariffs. Trump has threatened a 30% trade tariff on Japan if a deal is not made before the August 1st deadline.

Attention is turning to upcoming trading inflation data, which could offer further insight into the local fallout from tariff threats.

Furthermore, attention will also be on the upper house election on July 20th and the possibilities surrounding additional fiscal stimulus to help boost economic momentum.

USD/JPY Forecast – Technical Analysis

The USD/JPY has broken out of the holding pattern it has been in since early April. The price broke above 146 and 148.65, the May high, reaching a level of 149.15, a level last seen at the start of April.

Buyers supported by momentum will look to extend gains above the 200 SMA at 149.65 and 150, the psychological level. Above here 151.20 comes into focus, the March high.

Failure to hold above 148.65 could see the pair fall back towards 146.00 and into the familiar range.

USD/JPY-Daily Chart

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