GBP/USD finds a meager rebound on Monday, but UK CPI inflation looms ahead

• GBP/USD bounced back to 1.2700 after a hard drop to 1.2660.
• US Retail Sales in the barrel for Tuesday, UK CPI inflation slated for Wednesday.
• Fed rate cut hopes continue to drive market flows despite cautious rhetoric.

GBP/USD halted a recent slide on Monday, recovering 1.2700 after bottoming out near 1.2660 last week. Broader market sentiment recovered to kick off the new week as investors shrug off cautionary tones from Federal Reserve (Fed) officials to continue hoping for a September rate cut as US economic data softens.

Tuesday’s upcoming US Retail Sales will draw the market’s outlook sharply into focus. US Retail Sales in May are expected to tick back up to 0.2% MoM after the previous month’s 0.0% flat print. Core Retail Sales excluding automobiles in May are also expected to hold steady at 0.2%. Later in the week, US Purchasing Managers Index (PMI) figures scheduled for Friday are expected to ease slightly.

Read more: Fed policymakers warns that rates set to hold as the wait for more cooling inflation data continues

Fed official appearances are muttered throughout the week’s economic calendar, with several policymakers striking a notably cautious tone on Monday. Recent inflation data has cooled faster than expected, but the Fed remains in no rush to cut too early, cautioning that more data is needed before making a decision on rates.

UK CPI inflation is due Wednesday, forecast to tick upwards to 0.4% MoM in May, rising from the previous month’s 0.3%. The Bank of England (BoE) also gathers for a fresh vote on interest rates. The UK central bank is broadly expected to hold interest rates at 5.25% in June, with the Monetary Policy Committee (MPC) forecast to vote seven-to-two on keeping rates unchanged, inline with the BoE’s previous meeting.

GBP/USD technical outlook

GBP/USD rose back into the 1.2700 handle on Monday, but bullish momentum remains limited and the pair will need a fresh push to reclaim chart territory north of the 200-hour Exponential Moving Average (EMA) at 1.2734. The pair remains steeply off of last week’s peak bids near 1.2860, and near-term volatility has pushed the technical boundaries wider, leaving the pair to waffle in congestion.

A long-term supply zone beyond the 1.2800 handle continues to crimp bullish momentum on daily candlesticks despite Monday’s bounce from the 50-day EMA at 1.2671. The pair is holding on the north side of technical support from the 200-day EMA at 1.2593, but bidders are struggling to gather the needed momentum to break back into 2024’s peak bids near 1.2900.

GBP/USD hourly chart

GBP/USD daily chart