GBP/USD prediction: Is sterling a buy ahead of UK inflation data?
- The GBP/USD formed a break and retest pattern on the 4H chart.
- UK hiring expanded at the fastest pace in years as the unemployment rate remained at 3.8%.
- Focus shifts to the upcoming UK consumer and producer inflation data.
The British pound (GBP/USD) rose to the highest level since July 11th after the latest UK jobs data. The currency also held steady as the recent US dollar strength eased. It is trading at 1.2012, which was about 2% above the lowest level this month.
UK inflation data ahead
The GBP to USD exchange rate rose slightly after data by the Office of National Statistics (ONS) showed that hiring accelerated in May. the numbers showed that British workers moved to the labour market at the fastest pace since the pandemic started.
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The number of working-age people who are out of the labor market declined by 144,000 in the quarter through May. At the same time, employment increased by 296k, which was higher than the median estimate of 170k. The unemployment rate remained unchanged at 3.8% while employment moved above pre-pandemic levels. In a note, a Bloomberg analyst said:
“Still, when taken alongside elevated wage growth and rising inflation expectations, we think the central bank remains on course to lift rates by 50 basis points in August.”
The next key catalyst for the GBP/USD price will be the upcoming UK consumer and producer inflation data scheduled for Wednesday. With energy prices rising, and with the labor market being extremely tight, analysts expect that inflation rose to a multi-decade high of 9.1%. Excluding the volatile food and energy prices, analysts believe that inflation slipped from 59% to 5.8%.
Further, economists expect that producer price index (PPI) input rose from 22.1% to 23.2% while PPI output rose from 15.7% to 16%. Therefore, the BOE will likely deliver a giant 0.50% rate hike in August.
The GBP/USD price will also react to the upcoming US building permits and housing starts data. With interest rates surging, analysts see the two numbers falling in May.
The four-hour chart shows that the GBP to USD price formed a break and retest pattern. This happened when it retested the upper side of the descending channel. It has managed to move above the 25-day and 50-day moving averages. The Relative Strength Index (RSI) has moved close to the overbought level.
Therefore, the pair will likely keep rising as bulls target the important resistance level at 1.2160. This price was the lowest point on May 12th of this year.