GBPUSD Weekly Analysis: US Inflation Data, Fed Verdict, UK Labour Market and GDP numbers in focus

Rebounding from weekly lows, GBPUSD climbed to anew four-week high at 1.2590 last week on Friday before it pulled back towards 1.2570 area. As the week ahead is jam-packed with highly significant events on the economic calendar, the traders are bracing for a highly volatile week across the currency markets.

Week ahead

The action-packed week begins with a quiet Monday, giving investors enough time to prepare for Tuesday’s crucial United States Consumer Price Index (CPI) data, which is due at 12:30 GMT. Analysts predict that headline annual CPI inflation will fall dramatically to 4.1% in May, down from 4.9% in April. Inflationary pressures are anticipated to boost the Fed’s motivation to suspend interest rate hikes when it closes its two-day policy decision on Wednesday.

The United Kingdom Employment data will also provide new insights into labor market circumstances, which will have an impact on the Pound Sterling. Investors will also be looking forward to Bank of England Governor Andrew Bailey’s hearing on central bank independence before the House of Lords economic affairs committee later Tuesday.

The UK monthly Gross Domestic Product (GDP) figures, as well as Industrial Production and Trade Balance data, will be released on Wednesday. The Producer Price Index (PPI) report will be released in the US session, ahead of the highly anticipated Federal Reserve policy announcements. The Fed’s tightening cycle is expected to come to an end, but the Dot Plot chart and Chair Jerome Powell’s presser will set the tone for markets in the coming weeks.

Aside from that, the UK avoided a recession predicted by the Bank of England (BoE), but it is still dealing with stubbornly high inflation, which peaked at 11.1% in October last year. It has since fallen to 8.7%, putting pressure on the Bank of England to raise interest rates above safe levels.

This supports the GBP/USD, which is set to test the 1.2600 level, as swaps markets are currently pricing in the BoE raising UK interest rates to 5.50%, 100 basis points (bps) higher than current levels.