GBP/USD has reversed its direction after having climbed toward the 1.1950 area in the early European session on Wednesday. The pair stays under modest bearish pressure amid risk aversion and the short-term technical outlook shows that buyers remain reluctant to commit to a steady recovery.
The data published by the UK’s Office for National Statistics showed on Wednesday that the UK economy expanded by 0.5% on a monthly basis in May. This print followed April’s contraction of 0.3% and surpassed the market expectation of 0%. Additionally, Industrial Production and Manufacturing Production grew by 0.9% and 1.4%, respectively, with both of those prints coming in stronger than analysts’ estimates. Nevertheless, the positive impact of these data on the British pound remained short-lived and the UK’s FTSE 100 Index fell nearly 1% at the opening on Wednesday.
In the second half of the day, the dollar’s valuation is likely to continue to drive GBP/USD‘s action. Supported by safe-haven flows, the US Dollar Index holds above 108.00.
The US Bureau of Labor Statistics will publish the June inflation report. Investors expect the Consumer Price Index (CPI) to rise to 8.8% on a yearly basis from 8.6% in May. The Fed is widely expected to hike its policy rate by 75 basis points (bps) in July and this data is unlikely to change that. Market participants, however, will pay close attention to the market pricing of the Fed’s rate decision.
According to the CME Group’s FedWatch Tool, there is currently a 33.2% probability of a 75 bps rate hike in September. In case inflation figures come in stronger than forecast, the dollar could extend its rally further and weigh on GBP/USD. On the other hand, investors could reassess the Fed’s rate outlook on soft CPI data and open the door for a rebound in the pair.
Source- FxStreet