The GBP/USD pair continues to experience pressure, hovering near the 1.2920 level

The GBP/USD pair is enduring continuous strain, staying close to the critical 1.2920 level as the European session commences. This stress is fueled by the weaker-than-expected inflation data from the UK for June. The monthly Consumer Price Index (CPI) saw a mere increase of 0.1%, failing to meet the anticipated growth of 0.4% and significantly lesser than May’s 0.9% rise. More alarmingly, the yearly CPI fell to 7.9%, not meeting the predicted 8.2% and considerably lower than May’s 8.7% increment. Furthermore, the core CPI, which eliminates the unpredictable food and oil prices, dropped to 6.9%, below the expected market consensus of 7.1%.

Considering this underwhelming inflation data, there is speculation over the Bank of England’s (BoE) approach in its forthcoming policy meeting on August 3. Market analysts suggest that the BoE may lean towards a modest rate hike of 25 basis points (bps) instead of the previously speculated 50 bps increment, in an effort to stimulate economic growth amidst these uncertain times.

In the meantime, the US Dollar Index (DXY), a measure of the Greenback’s strength against other major currencies, has seen a significant surge, reaching the 100.20 mark after initially hitting the 100.00 level during the early Asian market hours. This rise in the DXY contributes further to the downward pressure on GBP/USD, making the Pound Sterling less appealing to investors due to a stronger US Dollar.

Over in the United States, the housing market experienced fluctuations in June. Housing Starts saw a decrease of 8% MoM, following a revised increase of 15.7% in May. Additionally, Building Permits also saw a decline of 3.7% in June, a stark contrast to the 5.6% rise in the previous month. These statistics indicate that market players are beginning to believe that the Federal Reserve (Fed) might be nearing the end of its current policy tightening cycle, hinting at a potential shift towards a more dovish stance.

As we move forward, market participants will be keeping a close eye on upcoming data releases, including US Unemployment Claims and UK Retail Sales, to gain further insights into both economies and their potential impact on the currency pair. As we look ahead to next week, the spotlight will be on the Flash Manufacturing Purchasing Managers Index (PMI) and Flash Services PMI from both the US and UK. These crucial indicators could have a substantial impact on the direction of the GBP/USD pair, offering valuable insight into future market sentiment and potential trends. Amidst the constantly evolving global economic environment, traders and investors remain alert, on the lookout for any triggers that could influence the currency pair’s trajectory.