The GBP/USD pair continues to ascend for the second straight session, currently positioned at approximately 1.2710 during Monday’s Asian trading hours.

The momentum behind this upswing is primarily driven by a softening US Dollar, buoyed by the recent slowdown in U.S. consumer inflation to 0.3% in April, stirring expectations for a potential Federal Reserve rate cut in 2024. Despite this, the Federal Reserve maintains a guarded outlook on inflation and the likelihood of rate reductions next year.

Fed’s Rate Cut Probability Edges Higher

The CME FedWatch Tool now indicates a 49.0% chance of a 25 basis-point rate cut by the Fed in September, a slight increase from the previous 48.6%. This anticipated policy shift could potentially weaken the US Dollar, further supporting the GBP/USD exchange rate.

Federal Reserve Board Governor Michelle Bowman recently highlighted that inflation’s decline might be less permanent than anticipated, suggesting that recent decreases were temporary and not indicative of ongoing trends.

Additionally, Richmond Fed President Thomas Barkin emphasized that reaching the Fed’s 2% inflation target would require more time.

UK Interest Rate Expectations and CPI Data

In the UK, market participants are gearing up for a possible 60 basis points rate cut by the Bank of England in 2024, starting as early as August. The upcoming release of the UK Consumer Price Index (CPI) for April is projected to show an annual increase of 2.7%, a crucial indicator that could significantly influence the GBP.

Following the March CPI data, BoE Governor Andrew Bailey noted, “Inflation in the UK is expected to approach its 2% target next month,” aligning with the Bank’s forecasts from February.

GBP/USD Price Forecast:

Currently, GBP/USD trades at $1.27043, marking a slight increase of 0.05% today. The 4-hour chart reveals a pivotal point at $1.27, essential for forecasting short-term price movements. Resistance is anticipated at $1.2735, $1.2765, and $1.2792, while support levels are identified at $1.2656, $1.2628, and $1.2605.

The Relative Strength Index (RSI) stands at 64, suggesting moderate bullish momentum without reaching overbought territory. The 50-day Exponential Moving Average (EMA) at $1.2649 acts as dynamic support, indicating that the bullish trend may persist if the price stays above this threshold.

Traders should closely watch the $1.27 pivot point. A sustained move above this level could propel GBP/USD towards the immediate resistance at $1.2735 and potentially higher towards $1.2765 and $1.2792.

Alternatively, a failure to maintain this level might lead to a retraction towards support at $1.2656, and potentially lower to $1.2628 and $1.2605.

The prevailing market sentiment remains cautiously optimistic, with the pound benefiting from broader market dynamics and technical indicators. The RSI at 64 indicates potential for further upward movement before the market reaches overbought conditions, while the 50 EMA provides robust support.