Pound edges higher, US CPI beats forecast

The British pound has posted gains in Thursday trade. The pair is currently trading at 1.4147, up 0.21% on the day.

UK GDP expected to expand

The UK economy has been gaining strength as lockdowns have been eased and the economy reopens. Although there are concerns about a fourth wave of Covid, the economy has certainly come a long way and the mood is one of optimism. We’ll get a look at the monthly GDP report on Friday (6:00 GMT), with an estimate of 2.2% for April (MoM), after a gain of 2.1% beforehand.

As well, Manufacturing Production will be released at the same time. The consensus stands at 1.5% m/m and a massive gain of 41.5% y/y. This reflects the sharp contraction in manufacturing a year ago, at the height of the corona pandemic.

US inflation outperforms again

The highlight of the week was US CPI for May, as investors remain concerned about higher inflation. For a second straight month, CPI was higher than expected, as the 0.6% gain exceeded the consensus of 0.4%. This was not the “eye-popping” reading we saw just one month ago, when CPI jumped 0.8%, crushing the forecast of 0.2%. Core CPI posted a strong read of 0.7%, well above the forecast of 0.4%.

The equity markets have shrugged off the latest inflation numbers, as investors don’t appear to believe that the Fed will veer from its ultra-dovish stance, even with higher inflation. The Fed has maintained that higher inflation is transient, and so far at least, the market is willing to dance to this Fed tune. As a result, the dollar has not made any gains, despite the strong inflation data.

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GBP/USD Technical Analysis

• GBP/USD is facing resistance at 1.4248. Above, there is resistance at 1.4332
• On the downside, there are support lines at 1.4082 and the round number of 1.4000

For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-events/

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