British pound flat on light data calendar

• US inflation expected to rise to 3.3%
• UK GDP projected to fall to 0%
• Fed member Harker says rates may have peaked

The British pound has had a relatively quiet week. In the North American session, GBP/USD is trading at 1.2731, down 0.13%.

Markets eye US inflation, British GDP

It has been a quiet week on the data calendar, with no tier-1 events out of the UK or the US. The rest of the week will be busier, with the US inflation report on Thursday and UK GDP on Friday. That could mean some volatility for the sleepy British pound.

US inflation expected to rise

The Federal Reserve’s aggressive tightening campaign has made its impact felt, as inflation has been falling and dropped to 3.0% in June. Headline CPI is expected to rise to 3.3% in July, while the core rate is expected to remain steady at 4.8%. Will an uptick in inflation change the Fed’s rate path? Probably not, especially if Jerome Powell follows the view that he has often stated, which is that a rate policy is not based on one or two inflation reports.

The money markets are confident that the Fed will take a pause at the September 20^th meeting, with an 86% probability according to the FedWatch tool. Another pause in November is likely (71% probability), but a higher-than-expected inflation report on Thursday would likely raise the odds of a rate hike in November.

Fed member Harker said on Tuesday that the Fed might be done raising rates, “absent any alarming new data”. Harker said that rates would need to stay at the current high levels “for a while” and went as far as to say that the Fed would likely cut rates at some point in 2024.

The UK economy is not in good shape and the possibility of a recession is very real. GDP is expected to flatline in Q2 (0.0%) after a weak gain of 0.1% in the first quarter. A weaker-than-expected GDP reading could spook investors and send the British pound lower.

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GBP/USD Technical

• GBP/USD is testing support at 1.2747. The next support level is 1.2622
•  1.2874 and 1.2999 are the next resistance lines

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