13.07.202312:10 Forex Analysis & Reviews: GBP/USD consolidates above 1.3000

The GBP/USD pair is testing the 1.30 level today for the first time since April 2022. The pair has been within a strong upward trend for the second consecutive week. And what's important is that the upward momentum is driven not only by the weakening of the American currency but also by the strengthening of the British pound. The established fundamental background has allowed GBP/USD buyers to rise and establish themselves above the 1.3000 target. Now their main task is to consolidate in this price area. Much will depend on the inflation report, which will be published in the UK next week (July 19). If British inflation proves to be an "ally" of the pound, buyers of the pair will discover new price horizons in the 1.30 range.

All contradictions in favor of the pound

Today, important macroeconomic reports were published in the UK. And although the releases painted a rather contradictory picture, the "overall score," so to speak, favors the British currency. For example, the UK GDP contracted by 0.1% in May. On one hand, there is nothing positive here, especially considering the 0.2% growth recorded in the previous month. But on the other hand, most experts predicted a more significant decline of 0.4%. So, de facto, the indicator turned out to be in the "green zone." And this is not the only example. Manufacturing production volume fell by 1.2%, with a forecasted decline of 1.7%.

So, overall there is a negative dynamic, but the situation does not seem as catastrophic as experts expected. This was enough for the pound to continue its upward path.

Recall that a weak labor market report was published in the UK last week, but the pound reacted positively to this release. The unemployment rate rose to 4.0% (although most experts were confident that the indicator would remain at 3.8%), and the number of jobless claims jumped by 25,000, while analysts predicted a more modest growth (19,000).

Despite these "far from rosy figures," the British currency strengthened its position. The fact is that traders focused their attention on the inflationary component of the report, which was the only one that ended up in the "green zone." It became known that average earnings, including bonuses, increased by 6.9%, the strongest growth rate since April 2022. The upward trend has been recorded for the third consecutive month. Excluding bonuses, the wage indicator increased by 7.3%, the same as in the previous month (against a forecasted decline to 7.1%).

The significant growth in wage indicators has strengthened hawkish expectations regarding the further actions of the English regulator, which has allowed the pound to not only stay afloat but also strengthen across the market.

A similar situation has unfolded today as well. Traders focused their attention on the positive reports, despite the fact that they de facto reflected a slowdown in the British economy.

Hawkish expectations are growing

The figures released today generally allow the Bank of England to take further steps to tighten monetary policy. Only the last puzzle piece remains, which will complete the corresponding picture—the June Consumer Price Index, which will be published in the UK next Wednesday. If the report ends up in the "green zone," the outcome of the August meeting will be practically predetermined.

The market will pay special attention to the core inflation. Recall that the core Consumer Price Index, excluding food and energy prices, jumped to 7.1% in May, while most analysts predicted a decrease to 6.7%. This is a multi-year record—the strongest growth rate of the indicator since 1992. Within this year, the indicator has shown upward momentum for the second consecutive month, and if the June result reflects further growth, we can confidently speak about the established trend.

Thus, the GBP/USD pair is rising not only due to the weakening of the greenback, but also due to the strengthening of hawkish expectations regarding the future actions of the Bank of England. The established fundamental background contributes to the development of the upward trend, as the hawkish expectations regarding the future actions of the Federal Reserve, on the contrary, are weakening.

The technical analysis also indicates the priority of the bullish scenario for the GBP/USD pair. On almost all "higher" timeframes (from H4, D1, W1), the price is either at the upper or between the middle and upper lines of the Bollinger Bands indicator. Additionally, on the D1 timeframe, the Ichimoku indicator has formed one of its strongest bullish signals, the "Parade of Lines." The main targets for the bullish movement are the levels of 1.3100 and 1.3150 (the upper border of the Kumo cloud on the MN timeframe).